Billions in SpaceX Trades Jolt ETFs Including Cathie Wood’s ARKK

Exchange-traded funds (ETFs) experienced significant multibillion-dollar flows in the past week, indicating that large investors may have utilized a controversial method to gain exposure to SpaceX's initial public offering (IPO). This practice, known as "creation/redemption" or "in-kind" trading, allows ETF managers to create or redeem ETF shares by exchanging underlying securities rather than cash. In the context of an IPO like SpaceX's, which is not yet publicly traded, investors could theoretically use existing, illiquid private shares to create ETF units, then redeem those units for cash, effectively bypassing traditional IPO allocation channels. This maneuver has caused unusual trading patterns in ETFs that hold private company stakes, including Cathie Wood's ARK Innovation ETF (ARKK). One fund manager, according to Bloomberg, temporarily restricted its product to mitigate this practice. The exact value of these trades is difficult to ascertain but is estimated to be in the billions, impacting ETFs that track private market investments. The situation highlights a regulatory gray area and the potential for market manipulation when dealing with private company valuations within publicly traded vehicles.