HOLDRs Creation and Redemption Fees Temporarily Reduced


The American Stock Exchange today sent out a notice that the Bank of New York has instituted a new fee structure for the issuance and cancellation of all HOLDRs. Bank of NY is temporarily waiving all of the issuance fees for HOLDRs, while the cancellation fee for HOLDRs will be reduced to two cents a share. Prior to today's announcement, HOLDRs had a ten cent creation and redemption fee per share. The new pricing structure is temporary and will remain in effect until May 13, 2002, according to the AMEX.

HOLDRs can only be bought and sold in round lots of 100, so before today's announcement it typically cost $10 to redeem 100 shares. Obviously, it will be considerably cheaper to create and redeem HOLDRs shares while the new price structure is in effect. HOLDRs are different from exchange-traded funds in that investors can exchange HOLDRs for the underlying stock in the portfolio at any time, for $2 for each round lot of 100 shares under the new pricing structure. This is the arbitrage mechanism that keeps the HOLDRs' price in line with the net asset value of the stocks in the underlying portfolio.

HOLDRs are fixed baskets of stocks that focus on thin slices of the economy like software or semiconductors and charge a management fee of 8 cents a share per year.

One industry insider indicated the announcement signals that the New York Stock Exchange may soon trade HOLDRs on the basis of unlisted trading privileges (UTP). The Big Board already trades three popular AMEX-listed ETFs: SPY, QQQ, and DIA.