April 1, 2014

Open any newspaper or turn on any business channel in the past 72 hours and the headlines scream stock market manipulation. In his new book “Flash Boys” promoted on CBS’s 60 Minutes, Michael Lewis ignited a firestorm over the role of high-frequency trading (“HFT”) that has carried over into every facet of the media and with the regulators. Today’s WSJ lead headline announces the FBI is investigating HFT traders, while NY Attorney General Schneiderman launched an investigation last week into the same topic. Whether you believe the rhetoric regarding HFT or not, the unintended consequences have investors once again questioning the integrity and stability of the financial marketplace and asking just how level is the playing field.

When did this conflict in the marketplace begin? Regulation NMS (“Reg NMS”) – launched in 2007 – was intended to modernize the U.S. equity markets, but to many industry participants instead created a fragmented marketplace that drove investors to crossing networks and dark pools when looking for execution liquidity. Whether it was Reg NMS or the beginning of decimalization (and then sub decimalization), payment for order flow, the onset of internalization engines, or when the exchanges went public (for profit), it’s hard to point to only one event that created the current state of noise in the equity markets.

Where does all of this leave the individual investor? Maybe Jimmy Page said it best with “Dazed and Confused.” Today’s fundamental investors face a continuing dilemma on how to mitigate the noise of the stock market and its effect on underlying stock prices. Over time, evidence suggests there is a real disconnect between the price of the market influenced by external noise and rhetoric, and the underlying fundamentals that drive corporate intrinsic value. We at Reality Shares believe corporate fundamentals should be the principal driver of stock price. We are working hard to provide the tools, indexes and analytics for investors to isolate fundamentals from the noise, and to help market participants make informed decisions based on tangible corporate results.


Decimalization = A system where security prices are quoted using a decimal format rather than fractions. Payment for Order Flow = When exchanges pay brokers for routing an order to them — perhaps a penny or more — as a way to attract more orders from brokers. Internalization Engine = An environment where broker-dealers match orders internally on their own trading desks before sending them to either dark pools or exchanges.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information, please call 1-855-595-0240 or click here to view or download a prospectus online. Read the prospectus carefully before you invest.

Investing involves risks, including possible loss of principal. Past performance does not guarantee future results. There is no assurance the stated objective(s) will be met. Not FDIC insured. See the section “Principal Risks” in the prospectus for important risk disclosures.

Investments in options, swaps, forward contracts and futures contracts are subject to a number of risks, including correlation risk, interest rate risk, market risk, leverage risk, and liquidity risk. Each of these risks could cause the Fund to vary from its stated objective, could cause the Fund to lose money and may have a negative impact on the value of your investment. Please refer to the Fund Risks for further explanation of individual risks.

This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such.

Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

You cannot invest directly in an index.

Reality Shares Advisors, LLC is the Investment Advisor. ALPS Distributors, Inc. is the Distributor for the Fund. Reality Shares Advisors, LLC and ALPS Distributors, Inc. are not affiliated.

The Fund is newly organized and the Adviser has not previously managed an ETF registered under the 1940 Act.

Shares of the Fund are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market Price is based on the midpoint of the bid/ask spread at 4:15pm ET on business days and does not represent the returns an investor would receive if shares were traded at other times.