Phantom of the Opera: ETF Shorting and Shareholder Voting
71 Pages Posted: 26 Mar 2019 Last revised: 1 Jun 2021
Date Written: May 19, 2021
The short-selling of exchange-traded funds (ETFs) creates "phantom" ETF shares, trading at ETF market prices, with cash flows rights but no associated voting rights. Unlike regular ETF shares backed by the ETF's underlying securities which are voted as directed by the ETF sponsor, phantom ETF shares are backed by collateral that is not voted. Introducing a novel measure of phantom ETF shares for the corresponding underlying securities, we find that increases in phantom shares are associated with decreases in number of proxy votes cast (for and against), and increases in broker non-votes, the voting premium, and value-reducing acquisitions.
Keywords: Exchange-Traded Funds, Proxy Voting, Voting Premium, Short Interest, Operational Shorting, Authorized Participants, Collateral, Broker
JEL Classification: G11, G12, G14, G23, G34
Suggested Citation: Suggested Citation