First The Bank of Japan destroyed the Japanese bond market, and then, back in May we warned that The Bank of Japan had 'broken' the stock market. Now, it appears the all too obvious consequences of being the sole provider of buying power in an antirely false market are coming home to roost as Nomura reports the "temporary suspension" of new orders for 3 leveraged ETFs - the largest in the world - citing "liquidity of the underlying Nikkei 225 futures market."
As Bloomberg reported previously on Nomura's funds,
Money is being shredded at an unprecedented rate in a souped-up exchange-traded fund tied to Japan’s most famous stock index.Since mid-August, investors have poured a record $4.5 billion into the Next Funds Nikkei 225 Leveraged Index ETF, a security designed to rise or fall twice as fast as its namesake equity gauge. That’s too bad, considering that twice the Nikkei 225 Stock Average’s loss over that period comes out to about 21 percent.So fast have the country’s individual investors been plowing money into the fund that even as a fifth was lopped off its price, its market value more than doubled. It’s the largest security of its kind in the world, and is now big enough to affect the whole stock market as overseers rush to buy and sell securities to meet its price target, according to BNP Paribas Investment Partners Ltd.“They are taking up a larger proportion of the market,” said Tony Glover, head of the investment management department at BNP Paribas Investment Partners Japan in Tokyo. “Volatile markets are not great news with increasingly wider intraday swings. The funds are a big factor causing this.”The ETF has become more popular with traders than even Toyota Motor Corp., Japan’s biggest company. Average turnover for the ETF was about 250 billion yen ($2.1 billion) a day over the past two months, triple that of Toyota.
* * *
Who could have seen this coming? Well we did... numerous times...and here is the explanation...