BMO's -3x Brazil note: a 0.95% fee, a spread the bank can widen, and an 11% quote
Bank of Montreal's MicroSectors -3x Short Brazil notes BRZD listed on Cboe on August 20, 2026 as unsecured BMO debt. As of Monday, September 14, they are down 30% from the first close.
The Daily Investor Fee on Bank of Montreal's new MicroSectors -3x Short Brazil notes BRZD is 0.95% a year, deducted from the closing indicative value. That is the number on the label. It is not the carrying cost.
Daily Interest applies the effective federal funds rate minus a spread to four times the note's value. The spread starts at 3.00% and BMO can raise it to 10.00%. If the difference is negative, the interest term reduces the note. The latest funds rate was 3.63% as of September 10, so the initial spread credits the note 2.52% a year before the investor fee. If BMO takes the spread to 10%, the same term subtracts 25.48% a year.
A holder-initiated redemption requires a minimum of 25,000 notes, $1.25 million at the $50 issue price, on an issuance of 100,000 notes, and carries a 0.125% fee unless the bank waives it. The ordinary holder's exit is the secondary market. Monday's quoted bid was $32.84 and the ask $36.70, an 11% gap.
A daily short of EWZ, issued as BMO debt
The notes reset each session toward three times the inverse of the daily move in iShares' MSCI Brazil ETF EWZ, before fees. They are senior unsecured BMO notes due July 31, 2046, not a portfolio of Brazilian stocks. Direxion's -3x short Brazil ETF stopped trading on September 23, 2014. The -3x tier has been absent since.
BMO sold $5 million of principal, 100,000 notes at $50 each, with REX Shares as structuring agent under the MicroSectors name. The notes sit on Cboe BZX. The reference is the VettaFi Brazil Equity Fund-Tracking Index, which follows EWZ rather than assembling its own Brazil basket. EWZ is the $8.69 billion, 0.59% fund that tracks the MSCI Brazil 25/50 Index: 46 holdings as of September 13, 34% financials, with Vale and Nu Holdings the two largest names.
BRZD pays no coupon and distributes nothing. Dividends on the Brazil book stay inside the total-return index. BMO and REX describe the notes as daily trading tools for sophisticated investors, not buy-and-hold positions, and not meant to be held to the 2046 maturity. The August 19 pricing supplement warns that daily compounding can make results over more than one session differ sharply from -3x of the index's point-to-point move, and that holders can lose the entire amount in a short period. Any payment depends on BMO's credit. The bank has no obligation to keep the listing.
The notes arrived with five siblings on the same day, including a +3x Brazil twin, BRZL, and Japan and Taiwan pairs. The short Brazil leg is the one that has to function as a hedge.
Three weeks through a Brazil rally
From the August 20 close through Monday, EWZ is up 10.3%. Three times that rally, inverted, is about 31%. The notes last changed hands at $35.30, 30% below the August 20 close of $50.57, roughly the daily-reset product doing the job through a one-way move, not a compounding accident.
Leverage around EWZ's 10.3% rally
- +30%
- +21%
- +10%
- −19%
- −30%
The book is the problem. Average volume is 606 notes a day, about $21,400. Assets are listed at $3.42 million as of September 11, a figure that mostly tracks the price decline from the $50 principal rather than a rush of redemptions. Monday's 11% bid-ask is the market that remains.
The inverse Brazil field is already empty
ProShares UltraShort MSCI Brazil Capped BZQ has been the -2x ETF on the MSCI Brazil 25/50 Index since June 16, 2009. It holds $2.58 million, lists a 0.95% net expense ratio, and averages about 14,400 shares a day. Seventeen years did not produce a franchise.
The money in leveraged Brazil sits on the other side. Direxion Daily MSCI Brazil Bull 2X BRZU holds $121 million.
BRZU is 90.3% of leveraged Brazil assets
- BRZU $121M
- BRZL $7M
- BRZD $3M
- BZQ $3M
Direxion cut that fund from +3x to +2x after the March 2020 close. BMO's 2026 notes put 3x back on both sides, as debt.
Two inverse listings, both subscale, in front of an $8.69 billion Brazil ETF. The 0.95% headline fee on BRZD matches BZQ's net expense ratio until the rest of the note terms are counted. EWZ's own 0.59% fee is already inside the index being shorted.
That is the engineering: a one-day -3x on a liquid Brazil ETF, wrapped as unsecured BMO paper, with a financing spread the issuer can widen. The marketing is a daily trading tool. A tool needs a market. This one has a listing, average volume of 606 notes a day, and an 11% quoted spread.
Frequently asked
Is the 0.95% fee what the note actually costs to hold?
No, the fee is only the label; a separate daily interest term applies the federal funds rate minus a spread to four times the note's value, and BMO can widen that spread to 10%, turning a credit into a large annual drag.
Why is BRZD down 30% when EWZ rose 10.3%?
Three times that rally, inverted, is about 31%, so the loss is the daily-reset product working through a one-way move rather than a compounding accident.
Can I get out of the notes without using the market?
A holder-initiated redemption requires a minimum of 25,000 notes and carries a 0.125% fee unless the bank waives it, so the ordinary exit is the secondary market.
Is this a portfolio of Brazilian stocks?
No, it is senior unsecured BMO debt maturing in 2046, and any payment depends on the bank's credit.