Behind another round of rapid capital inflow, arbitrage games are being played out in the ETF market.

Wind data shows that as of October 12th (last Friday), in the 9 trading days since the "924" new policy, the overall fund shares of non-cash ETFs increased by 198.698 billion shares, equivalent to the increase in the previous month, with the current total fund shares reaching 2.35 trillion shares; the fund scale increased from 2.56 trillion yuan to 3.41 trillion yuan, an increase of 847.805 billion yuan, which is 1.7 times the annual increase in non-cash ETF scale last year (49.71 billion yuan).

Capital is rushing to enter, abnormal premiums, and the subsequent rapid decline in shares and premium rates lead the market to speculate that it is the work of arbitrage capital. Among them, the linkage mechanism between the primary and secondary markets of ETFs can form the most common arbitrage model.

In fact, the existence of arbitrage capital can bring liquidity to the ETF market and can also pull the deviating ETF market price back to its net value level. However, this is not something that ordinary individual investors can easily get involved in. Some ETFs have recently appeared to be at a discount limit, which is also a good opportunity for some arbitrageurs to earn the spread, while investors may face the situation of stopping profit at the limit board and missing the subsequent investment value.

The total amount has been greatly raised, and growth track ETFs have become the target of capital competition in recent times. Data shows that in the past 9 trading days, China's Shanghai Science and Technology Innovation Board 50 ETF, E Fund's ChiNext ETF, E Fund's Shanghai Science and Technology Innovation Board 50 ETF, Huatai-Pine Rich Shanghai and Shenzhen 300 ETF, Harvest Shanghai Science and Technology Innovation Board Chip ETF, Huaan ChiNext 50 ETF and other 6 non-cash ETFs have been net subscribed for more than 10 billion shares.

In addition to the increase in absolute quantity, there is also a doubling of fund shares. For example, during the above period, the share increase of Guolian An ChiNext Technology ETF exceeded 800 million shares, with an increase of more than 40 times; the fund share of Huatai-Pine Rich ChiNext Technology ETF also increased by more than 1 billion shares, with an increase of more than 10 times. Several sub-theme ETFs of the Science and Technology Innovation Board, such as New Energy, New Materials, and Chips, as well as Dual Innovation 50 ETF, also have products with multiple increases in fund shares in just a few days.

The short-term concentrated influx of large amounts of capital is often seen as the entry of institutional investors. For the recent influx of huge amounts of capital, the market speculates that it is the work of arbitrage capital.

ETF arbitrage game is on.

"This is a story of ETFs being greatly overvalued, then being subscribed for arbitrage, and the scale can only be passively bought when it increases." Regarding the recent announcement by SMIC that its A shares have been increased to a certain Science and Technology Innovation Board 50 ETF to the threshold, netizens have summarized it in this way.By examining the recent fluctuations and net value performance of this Science and Technology Innovation Board 50 ETF, it is not difficult to see that there have been several instances of abnormal premium situations in the recent period. It is reported that the IOPV discount rate is an indicator to measure the difference between the ETF's trading price in the secondary market and its real-time reference net value (IOPV). Generally speaking, if the value is positive, there is a premium situation, and vice versa, it is a discount.

On October 8th and September 30th, the ETF's discount rate reached 4.76% and 2.35%, respectively, creating the highest level since the ETF was listed. Taking October 8th as an example, the ETF closed up 20.02% in the secondary market, while the net value on October 8th increased by 17.34%, indicating a premium compared to the net value.

These two trading days were also moments when the ETF's share growth was relatively fast. On September 30th, the ETF was net subscribed by 4.125 billion shares, and on October 8th, the fund's shares increased by another 7.965 billion shares.

Conversely, in the last two trading days, the ETF's IOPV discount rate has dropped to 1%. On October 10th, there was a discount, and on October 11th, there was almost no premium, during which the fund's shares were redeemed by 983 million shares.

In addition to this ETF, many other ETFs related to the Science and Technology Innovation Board and the ChiNext Board, which have seen rapid share growth recently, have also experienced similar situations. "In the recent rebound market, the Science and Technology Innovation Board and the ChiNext Board have been particularly eye-catching, which inevitably attracts investors who are limited by account opening conditions to use ETFs to get on board," said Cui Yue, an analyst at Morningstar (China) Fund Research Center. Due to the surge in demand for related ETFs in the secondary market, the ETF market price is lifted, causing it to deviate from its net value and generate a premium, thus creating an arbitrage space for primary market participants.

Furthermore, she also mentioned that transaction data around the National Day holiday showed significant increases in trading volume, net inflows, premium rates, and shares of ETFs related to the Science and Technology Innovation Board and the ChiNext Board, while the premium rate has recently decreased and share growth has also slowed down. "These changes reflect to some extent that there may be primary market participants using the subscription of ETF shares to arbitrage the premium in the secondary market."

Regarding recent ETF arbitrage, a public fund manager also frankly told the reporter that many arbitrageurs have made a lot of money. "The characteristics of the new funds in this round of market reflect a more pure Beta market in the stock market, with major assets rising and falling together, and no difference in upward movement, which also brings abundant funds for the expansion of index-type products, thus bringing large subscriptions for related ETFs."

He explained that during the process of ordinary investors buying, arbitrage funds also continuously provide them with participation chips through primary subscriptions. Due to the competitive nature of arbitrage funds themselves, under normal market conditions, the addition of transaction costs will be within a reasonable range and is a reasonable phenomenon.

Arbitrage or being trapped?

How to achieve arbitrage? The reporter from Caixin learned that the most common ETF arbitrage first involves buying the stock portfolio corresponding to the ETF's target index in the stock market, thereby subscribing to the ETF in the primary market, and then selling it in the secondary market to capture the premium where the ETF's trading price is greater than its real-time net value, achieving premium arbitrage, that is, buying low and selling high.Cui Yue stated that this type of arbitrage requires the arbitrageur to be an authorized dealer in the primary market, which means institutional investors or individual investors with substantial financial resources. The reporter also learned that there is a certain capital threshold for subscriptions and redemptions in the primary market, and individual investors are more likely to directly engage in low buy and high sell in the secondary market.

"Although the arbitrage space seems quite attractive, it is not something that ordinary individual investors can easily get involved in," she analyzed, adding that such opportunities are often fleeting, and the emergence of arbitrage activities often signals that the arbitrage space is rapidly shrinking.

In fact, the premium of several ETFs has been corrected in just a few days recently. Cui Yue also warned that ordinary individual investors should keep a clear mind and avoid being deceived by the arbitrage space of ETFs.

The situation of ETFs with a high proportion of stocks from the STAR Market and ChiNext board that hit the limit up and discount arbitrage is also worth paying attention to. Industry insiders explained that since the price fluctuation limits for constituent stocks of the STAR Market and ChiNext board are both 20%, and in the stock ETF market, apart from the broad-based ETFs corresponding to the STAR 50, STAR 100, and Double Innovation indices, as well as some thematic ETFs tracking the above markets, most ETFs have a price fluctuation limit of 10%.

"But in recent years, the phenomenon of indices containing stocks from the STAR Market and ChiNext board has gradually increased, making the actual 'Double Innovation' content of some indices not low," the aforementioned industry insider analyzed. When the market rises across the board and the constituent stocks of the main board reach 10%, the index can be brought to the 10% position. However, considering that the price fluctuation limit of the Double Innovation constituent stocks included is 20%, the actual increase of the index may be lifted to more than 10% or even higher (depending on the weight of the Double Innovation proportion), and the price fluctuation of the ETF tracking the index is limited to 10%. This leads to the situation where some ETFs hit the limit up but are discounted.

"Ordinary investors, who do not understand the mechanism, will sell on the limit-up board, and arbitrageurs or the receiving party can capture the price difference between the actual price fluctuation of the index and the price fluctuation of the ETF," he mentioned. In this round of the market, this price difference is not low and may reach around 10%. Considering the trading volume is not low, it has brought substantial profits to some investors.

The reporter sorted out the data and learned that on October 8 alone, more than a hundred ETFs experienced a situation of hitting the limit up and being discounted, among which about ten had a discount of more than 10%. Some ETFs pegged to indices such as the CSI All-Share Integrated Circuit, CSI Chip Industry, CSI Semiconductor Industry, and CSI Semiconductor Materials and Equipment Themes all had a significant discount.