ZSP arbitrage opportunity emerges

How exactly does the BMO Global Asset Management's market maker for the S&P 500 product operate? Someone might have to pay the price for this trade. But first, let's thank them—they ignored today's foreign exchange trend and artificially created a 40 basis point premium. This is basically giving money away.

Here's the background: ZSP is a USD-hedged product, essentially an ETF tracking the S&P 500 index. The key lies in its hedging mechanism. When forex market fluctuations are significant, if market makers do not adjust their pricing models promptly to reflect these changes, obvious mispricings occur—and that’s exactly what happened today.

40 basis points may not sound like much, but in the world of high-frequency trading and arbitrage, this is already a considerable profit margin. Market participants have already noticed this anomaly. Whether hedge funds or professional traders, they are pondering how to exploit this pricing failure window.

This kind of event reflects that even large asset management firms, their market maker teams, can still experience execution lapses when responding to rapidly changing markets.