NEO last price methodology

David Mann

David Mann
Head of Global ETF Capital Markets

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Magan Rust

Megan Rust
ETF Capital Markets Analyst

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Given all the possible questions about the exchange-traded funds (ETF) ecosystem, the official closing price of an ETF is probably pretty far down the list. The closing price is the last price of the day, right? As it turns out, there was room for improvement on the way the official closing price is calculated and there is a new rule change that does that.

One of the main goals of this blog is to highlight problems and misconceptions within the ETF ecosystem and then offer explanations or even possible solutions.  In the past, we have blogged about how at times an ETF’s volume doesn't tell the whole story. This is especially important when fund selection is driven by this metric.

Another metric that is quite frequently used is an ETF’s closing price. This price is used to determine the daily profit and loss (P&L) of an investment and can also be used to calculate an ETF’s volatility over a given timeframe. Once again, data calculated from an ETF’s closing price can sometimes drive investment decisions.

For ETFs with high volumes, we rarely have heard concerns about potential problems with the closing price. Instead, most of the questions we have received on an ETF’s closing price have been about premiums and discounts for ETFs that hold underlying international securities.

Premiums and discounts can arise from ETFs that trade less frequently, which could cause the perception of a disconnect between the closing price of the ETF and the value of its underlying basket of securities. This disconnect can get intensified if the ETF does not trade for a couple of days.

Some good news to share! Following NYSE Arca and other US exchanges, the NEO Exchange took action and changed how closing prices are calculated. You can find the entire methodology here.

We are very happy with this change. To give a high-level summary of the new methodology, for ETFs that have high volumes and trade throughout the day, the last-traded price will be used as the closing price, just as is done currently. However, for ETFs that do not trade as frequently, the closing price will be determined using a time weighted average of the midpoint of the bid/ask spread over the last fifteen minutes of the trading day.

We think this approach is a big improvement!  Prior to this change, the official closing price of a Canadian listed ETF was its last eligible trade, and on days with no trading, the previous day’s close would be used. Now, the official close will be based on the live markets that day, even if there was not any volume transacting on those markets. This should be a far more accurate reflection of the ETF’s price.

We strongly support this change from NEO and look forward to working with all members of the Canadian ETF ecosystem to continue to improve the investor experience when trading ETFs.

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Given all the possible questions about the exchange-traded funds (ETF) ecosystem, the official closing price of an ETF is probably pretty far down the list. The closing price is the last price of the day, right? As it turns out, there was room for improvement...

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Commissions, management fees and expenses may all be associated with investments in ETFs. Investors should carefully consider an ETF’s investment objectives and strategies, risks, fees and expenses before investing. The prospectus and ETF facts contain this and other information. Please read the prospectus and ETF facts carefully before investing. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. Performance of an ETF may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Ahmed Farooq’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

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