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Vending machines, ETF design, Matt Levine


This week in Keeping Tabs: ETFs during the market meltdown and the economics of vending machines.

Fancy a side hustle? Or looking for a way out of finance? At a publication called, err, The Hustle, Zachary Crockett writes about how people, not companies, in the US earn income through controlling vending machines. Fascinatingly, no single entity owns more than 5% of the market in the US, and more than two-thirds of operators earn under $1m in revenue a year.

It's not just food and drink: vending machines can sell live crabs, beluga caviar, engagement rings, and — in the Covid-19 age — masks and hand sanitiser.

That particular hustle has low start-up costs and can be scaled, while the work required for the venture, such as restocking and collecting cash, is not too onerous and can be done to flexible hours.

There might be another upside too. One entrepreneur, Crockett reports, now earns more from his YouTube channel about being a vendor, than he does from the machines themselves.

Back to capital markets now, where the International Capital Markets Association has released its fourth quarter report. There's an interesting article on exchange-traded funds (ETFs) from Joanna Cound and Stephen Fisher, both in the public policy team at BlackRock.

Of course, at this point it is worth noting that BlackRock has a substantial ETF business.

They say that in the recent market volatility, bid-ask spreads in ETFs widened in-line with the market. But they add that often it was easier to trade the ETF than the basket of underlying securities.

"It was generally more cost-effective for investors to access the corporate bond market using ETFs than to do so by buying or selling the individual bonds," they say.

Fixed income ETFs became dislocated from the value of the underlying securities in the market panic. However, "rather than exposing a flaw in the ETF structure, these discounts highlighted how fixed income ETF prices can provide a window into underlying market conditions, transmitting real-time information and providing price discovery for market participants," according to Cound and Fisher.

The value of these underlying securities tends to be calculated once daily using actual trades and/or estimates. The market price of the ETF can swing more rapidly than this.

Cound and Fisher discuss a particular UCITS ETF offering exposure to US dollar investment grade credit, which closed roughly 7.5% below its end-of-day net asset value on March 12. The ETF changed hands more than 1,000 times on exchange and over the counter, whereas its top five underlying holdings traded an average of just 37 times each.

The duo say, however, that the "opacity and fragmentation" of underlying bond markets, which led to ETFs becoming a price discovery tool, bolsters the case for an EU consolidated tape for bond markets.

Finally, Emily Flitter at The New York Times profiles Bloomberg writer Matt Levine, the former Goldman Sachs banker whose newsletter pings into inboxes across Wall Street and the City of London every day.

"Mr. Levine writes about Wall Street in a way that makes its denizens feel as if he is writing for them," Flitter says. "Yet he gives the same impression of personalisation to readers who know little about finance.

"He once took a term that appeared in a lawsuit — a 'cash-settled forward purchase agreement for Citigroup shares with downside protection in the form of a put option at the same price as the forward' — and gave it the acronym CSFPAFCSWDPITFOAPOATSPATF.

"He makes readers feel in on the savage joke that is late capitalism."

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