Market & liquidity Lab 02
ETF Liquidity
Can stressed underlying liquidity and AP capacity absorb an ETF redemption, and what NAV discount could the gap imply?
Saved example run
Generated using bundled data. These values illustrate the diagnostic and are not current market observations.
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ETF Liquidity Stress Report
Risk level: SEVERE
| Metric | Value |
|---|---|
| Redemption shock | $300.0M |
| Stressed underlying liquidity | $856.9M |
| AP daily capacity | $160.0M |
| Liquidity gap | $140.0M |
| Estimated discount | 369.8 bps |
| Liquidation days | 1.88 |
| Weighted spread | 31.9 bps |
| Thin-basket weight | 44.0% |
Key warnings
- AP capacity overwhelmed
- Large weight in thinly traded constituents
Methodology
- ADV is haircut by liquidity tier (liquid 35%, moderate 20%, thin 6%) and scaled by market-depth stress.
- Daily stress capacity is the lesser of authorized-participant capacity and stressed underlying basket liquidity.
- Estimated discount combines weighted spread, tracking buffer, liquidity gap ratio, thin-basket penalty, and liquidation-days penalty.
The paper trail
Inspect. Reproduce. Extend.
Run this command from the finance-labs repository root to reproduce the bundled example.
Exact command
PYTHONPATH=labs/etf-liquidity/src python3 -m etf_liquidity_stress_lab stress labs/etf-liquidity/examples/sample_holdings.csv --aum 2500000000 --redemption-pct 0.12 --ap-capacity 160000000 --market-depth 0.70
View original captured output
# ETF Liquidity Stress Report
**Risk level:** SEVERE
| Metric | Value |
|---|---:|
| Redemption shock | $300.0M |
| Stressed underlying liquidity | $856.9M |
| AP daily capacity | $160.0M |
| Liquidity gap | $140.0M |
| Estimated discount | 369.8 bps |
| Liquidation days | 1.88 |
| Weighted spread | 31.9 bps |
| Thin-basket weight | 44.0% |
## Key warnings
- AP capacity overwhelmed
- Large weight in thinly traded constituents
## Methodology
- ADV is haircut by liquidity tier (liquid 35%, moderate 20%, thin 6%) and scaled by market-depth stress.
- Daily stress capacity is the lesser of authorized-participant capacity and stressed underlying basket liquidity.
- Estimated discount combines weighted spread, tracking buffer, liquidity gap ratio, thin-basket penalty, and liquidation-days penalty.
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