“The recent announcement regarding the adjournment of the ETP securityholders’ meeting highlights ongoing challenges for leveraged and inverse exchange-traded products (ETPs) that have experienced significant declines in value. A proposed amendment seeks to reduce the principal amount of affected securities to address a threshold event where the ETP security value has fallen below 2% of the original principal amount. This procedural step allows additional time for holders to participate and vote on the extraordinary resolution, which could prevent compulsory redemption scenarios and potentially improve liquidity in secondary markets. The adjournment reflects standard governance practices in structured products when quorum or voting thresholds are not initially met.”
ETP Securityholders Meeting Adjournment and Principal Amount Amendment Proposal
Exchange-traded products (ETPs), particularly those offering leveraged or inverse exposure to underlying assets such as commodities, equities, or cryptocurrencies, are structured as debt instruments with a defined principal amount. This principal amount serves as a nominal reference value, often set at a low level relative to the initial net asset value (NAV) or ETP security value at launch. It plays a critical role in the product’s mechanics, including triggers for potential redemption events and protection features.
A threshold event occurs when the ETP security value drops below 2% of the principal amount on a valuation date. This breach activates specific conditions under the trust deed governing the securities. In response, the issuer is required to convene a meeting of ETP securityholders to consider an extraordinary resolution. The goal is typically to amend the documentation—often by reducing the principal amount—to realign it with the diminished security value, ensuring the product remains viable without triggering an automatic or compulsory redemption.
In recent cases involving certain leveraged ETP series, such as those tracking high-volatility assets like MicroStrategy or other single-stock leveraged products, the ETP security value has fallen sharply below this 2% threshold. For instance, in early February 2026, specific series experienced this decline, prompting issuers like Leverage Shares plc to issue notices under Condition 8.5(A)(1) of the ETP conditions. Rather than suspending redemptions outright, issuers have opted to propose consolidations or direct reductions to maintain functionality.
The proposed amendment generally involves reducing the principal amount to a level not less than 2% of the current ETP security value at the time of any potential suspension. This adjustment does not alter the economic exposure or the redemption amount an investor would receive in practice, as the value is derived from the underlying collateral or reference asset performance minus fees and costs. However, it reduces the aggregate principal amount across all outstanding securities, which can impact the principal protection amount—a floor value payable in certain redemption scenarios where the pro-rata liquidation value falls short.
Key Mechanics of the Principal Amount Reduction
Trigger : ETP security value < 2% of principal amount.
Issuer Response : Convene meeting for extraordinary resolution to amend principal amount.
Effect : Re-sets the ratio between security value and principal, avoiding compulsory redemption if value remains low.
No Direct Impact on Investor Economics : The reduction maintains proportional value; holders receive equivalent economic interest post-amendment.
Alternative Approaches : Some issuers propose consolidation (reverse split-like adjustment) to increase per-security value toward a target (e.g., ~$50), indirectly achieving similar outcomes without formal principal change, though aggregate principal decreases.
Adjournment of the Securityholders’ Meeting
When initial meetings fail to achieve the required quorum or voting majority for the extraordinary resolution, issuers adjourn proceedings to a later date. This adjournment, as seen in announcements from February 2026, provides additional opportunity for securityholders to cast votes, either in person, by proxy, or through other approved methods. The adjourned meeting is typically scheduled to consider the same resolution—approval of a deed of amendment to the trust deed effecting the principal reduction.
Adjournment ensures broader participation, especially in products held by retail and institutional investors across global exchanges. It avoids premature failure of the proposal, which could lead to suspension of redemptions or eventual compulsory redemption if the low value persists. In one recent example involving WisdomTree-issued products (such as certain copper or oil leveraged shorts), an adjourned meeting successfully passed the resolution, leading to execution of the deed and implementation of the amendment.
Implications for Investors
For U.S. investors accessing these ETPs—often listed on European exchanges like the LSE but available through international brokers—these developments underscore the risks inherent in leveraged products:
Volatility Amplification : Leveraged ETPs can erode value rapidly in adverse markets, triggering these thresholds more frequently.
Liquidity Considerations : Low per-security values can hinder trading efficiency; amendments or consolidations aim to restore tradability.
Redemption Risks : Failure to pass the resolution increases the chance of compulsory redemption, where holders receive the greater of principal protection or pro-rata liquidation proceeds.
No Change to Core Exposure : Approved amendments preserve the leveraged or inverse profile relative to the underlying, adjusted for the new principal baseline.
Investors should monitor issuer notices closely, as these outline exact meeting dates, voting procedures, and potential outcomes. Participation in the vote is crucial, as low turnout can delay or derail necessary adjustments.
Broader Market Context
These events are not isolated. Leveraged ETPs tied to volatile references—such as tech stocks, commodities, or crypto proxies—have seen repeated threshold breaches in recent years amid market swings. Issuers employ these mechanisms to sustain products rather than liquidate them prematurely, benefiting long-term holders who anticipate recovery in the reference asset. However, persistent low values signal caution, as ongoing amendments may indicate structural challenges in maintaining the product’s integrity.
Disclaimer This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. Investors should consult their own financial advisors and review official issuer documents before making decisions.
