The initial public offering of the financial instrument for betting
on U.S. home prices has failed because its auction could not generate a
balance of investor interest in the product's two linked trusts,
according to a filing with the U.S. Securities and Exchange Commission.
MacroMarkets, which could not be reached for comment regarding how
or when it might launch the product, stated in its SEC filing that it
ultimately rejected all of the auction's bids because there was an
insufficient demand for an equal number of Down and Up shares.
That meant the company had to abandon the auction process because
the product can function only if there are an equal number of shares in
both the up and the down trust and if each pair of shares adds up
If the benchmark index falls, for example, a portion of the up
shares' value moves into the down trust and the shares' prices adjust
The company had already extended the auction in an effort to attract
more and bigger institutional investors and had postponed the start of
trading, scheduled for May 11.
MacroMarkets had originally set a minimum closing investment pool of
$125 million. Chief Executive Sam Masucci declined to disclose the
value of the bids received before the company decided to extend the
Interest from institutional investors was greater than the original
minimum, Masucci had said, but the institutions needed more time to
understand the product and generate internal support for it.
MacroMarkets solicited investment from such parties as homebuilders
or banks who want to hedge their housing exposure and foreigners who
want to play in U.S. real estate.
Investors might have struggled to value the shares because doing so
requires not only predicting the movement of the underlying 10-city
index but also gauging the relationship between the index and home
prices, said Dave Johnson, a trader based in Watertown, Connecticut,
who focuses on exchange-traded funds, futures and commodities.
There are other ways to get exposure to housing weakness, Johnson
said. You can play that with the homebuilders, or materials producers.
Johnson admires the theory behind the product but thinks it might not generate enough volume for him to trade in it.
This could be a great tool if you could educate people on how it
would work, he said. There's a fear of getting involved in something
Robert Shiller, the Yale professor of economics who with Karl Case
devised the widely watched housing index to which the product is
pegged, has encountered this kind of caution on the part of investors
A futures market weighted to the 10-city index trades on the Chicago
Mercantile Exchange, but thinly, said Shiller, who is also a co-founder
If and when the housing trusts do launch, their shares will trade
under the symbols UMM UMM.N for up and DMM DMM.N for down on the
NYSE Arca, the New York Stock Exchange's all-electronic U.S. trading
platform, according to SEC documents.