Monday, February 20, 2012

What’s happening with the ETF industry?


Recently, with all the matters in the economic stability of US, regulators have been looking closely to funds such as the exchange-traded fund (ETF). ETF is defined as an investment fund traded on stock exchanges. The US Securities and Exchange Commission is in-charge in investigating on the state of ETF.

Due to a delay in the big trade for a popular ETF, US SEC has been prompted to look closely at a possible connection between hedge funds coming in and out of ETF and high-frequency traders, and cases when ETF have failed to settle trades on time.
 
The investigation started last year which probed on how complex ETFs allow investors to boost up their returns against stock indexes. UK and US regulators fear that because of the failure of these settlements, financial markets are put into a state of volatility and systemic risk. According to SEC spokesman, the commission is also probing into illiquid ETFs and failed trades.

The ETF industry became popular in 1990’s. ETFs are treated as baskets of securities. It holds different assets like commodities, stocks, bonds, and trades. ETFs mostly track an index such as MSCI EAFE or S&P. The ETF industry is classified as Unit Investment Trust or open-ended companies.

The industry surge popularity as investments due to its low costs, stock efficiency, and features which are stock-like. The ETF typically acknowledged institutional investors as authorized participants to buy or sell ETF shares directly from or to a fund manager. ETFs are only issued in large blocks of 50,000 shares perhaps. 

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