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In this answer it is stated that when an ETF closes "there's likely to be increased volume and perhaps a somewhat lower price initially but that should level out."

I'm curious why one would expect these effects to occur? Why would people rush to buy into this ETF if it closes soon ("increased volume") and why would the lower price level out (in particular, if the ETF market value is much higher than the net asset value the ETF possesses)?

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  • "Why would people rush to buy ..." — Perhaps people are rushing to sell. Every time a share trades, there is a buyer and a seller.
    – Flux
    Commented Feb 22, 2022 at 16:15

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Why would people rush to buy into this ETF if it closes soon ("increased volume") ...

I don't think people are rushing to buy. They are rushing to sell. As a retail investor, when an ETF I own is about to be liquidated, I would sell my ETF shares before the liquidation date to avoid a "reorganization fee" charged by my stock broker ($38 at TD Ameritrade and E-Trade). This could be the cause of the increased volume and lower price, but I don't have any concrete research to back this up.

The lower price would eventually level out to the level of the ETF's net asset value, since this net asset value is what the owners of the ETF will be receiving in cash when the ETF liquidates.

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  • Wouldn't it rather level out to the level of the ETF's net asset value minus the reorganization fee? Also, if you sell your ETF before the liquidation fee, isn't the reorganization fee in that case already priced in (i.e I would find it hard to believe to be able to find buyers who would buy it and then a bit later be happy to pay the reorganization fee)? Commented Feb 23, 2022 at 16:20
  • @user7088941 The short answer is that not everyone is subject to the "reorganization fee". It just happens that some of the largest stock brokerage firms in the US charge this relatively large fee to their retail clients.
    – Flux
    Commented Feb 23, 2022 at 22:25

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