Exchange-traded Product
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An exchange-traded product (ETP) is a regularly priced
security Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...
which trades during the day on a national
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...
. ETPs may embed derivatives but it is not a requirement that they do so - and the investment memorandum (or offering documents) should be read with care to ensure that the pricing methodology and use (or not) of derivatives is explicitly stated. Typically, individual underlying securities, such as
stocks Stocks are feet restraining devices that were used as a form of corporal punishment and public humiliation. The use of stocks is seen as early as Ancient Greece, where they are described as being in use in Solon's law code. The law describing ...
and bonds, are not considered ETPs. ETPs are often benchmarked to indices,
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s,
commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a comm ...
, or may be actively managed. There are several types of ETPs, including: *
Closed-end fund A closed-end fund (CEF) is a fund that raises capital by issuing a fixed number of shares which are not redeemable, and then invest that capital in financial assets such as stocks and bonds. Unlike open-end funds, new shares in a closed-end fund ...
s (CEFs) are collective investment vehicles which restrict the investors right to redeem their units at
net asset value Net asset value (NAV) is the value of an entity's assets minus the value of its liabilities, often in relation to open-end, mutual funds, hedge funds, and venture capital funds. Shares of such funds registered with the U.S. Securities and Exch ...
(NAV) *
Exchange-traded derivative contract Exchange-traded derivative contracts are standardized derivative contracts such as futures and options contracts that are transacted on an organized futures exchange. They are standardized and require payment of an initial deposit or margin settled ...
s *
Exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the ...
s (ETFs) are mutual funds trading at a stock exchange having agreements in place to ensure that the stock exchange price always is close to the NAV *
Exchange-traded note An exchange-traded product (ETP) is a regularly priced security which trades during the day on a national stock exchange. ETPs may embed derivatives but it is not a requirement that they do so - and the investment memorandum (or offering document ...
s (ETNs) are unsecured derivative debt obligations issued by banks or investment firms with a repayment value linked to an index or basket of assets *Exchange-traded commodities (ETCs) are asset-backed securities repackaging the value of commodities or currencies and listed at a stock exchange. ETCs are known in the European market where - other than in the USA - mutual funds cannot invest in single commodities or undiversified baskets of commodities. The distribution and marketing of ETCs thus is not regulated by mutual fund laws but by the Prospectus Directive. *Exchange-traded instruments (ETIs) are derivative securities repackaging the value of an index or even actively managed portfolio issued by financial institutions and listed at a stock exchange. ETIs are known in the European market where several investment strategies cannot be replicated within a mutual fund and ETIs are set up as an alternative investment vehicle to overcome these restrictions. The distribution and marketing of ETCs thus is not regulated by mutual fund laws but by the Prospectus Directive. These investment vehicles are sometimes also marketed as Exchange-traded certificates or (if unlisted) actively managed certificates (AMC) ETPs also qualify for advanced types of orders such as
limit order An order is an instruction to buy or sell on a trading venue such as a stock market, bond market, commodity market, financial derivative market or cryptocurrency exchange. These instructions can be simple or complicated, and can be sent to either a ...
s and stop orders. This is in contrast to traditional
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
s which are only available for buying and selling at certain points in the day.


Regulation

On October 6 of 2021,
SEC Chair The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
Gary Gensler Gary Gensler (born October 18, 1957) is an American government official and former investment banker serving as the chair of the U.S. Securities and Exchange Commission. Gensler previously led the Presidential transition of Joe Biden, Biden–Ha ...
warned that leveraged exchange traded products present a risk to the "stability of financial markets" and called for tighter regulations on the "complex" products. He said "
leveraged In finance, leverage (or gearing in the United Kingdom and Australia) is any technique involving borrowing funds to buy things, hoping that future profits will be many times more than the cost of borrowing. This technique is named after a lever ...
ETPs] can pose risks even to sophisticated investors and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions". Leveraged ETFs have been found to exaggerate intraday momentum. However, this momentum is often rebalanced at next trading day's opening as the momentum is not due to any new information. This means that the momentum is due to automatic actions from the ETFs when responding to temporary price pressures.


See also

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List of exchange-traded funds The exchange-traded funds available on exchanges vary from country to country. Many of the ETFs listed below are available exclusively on that nation's primary stock exchange and cannot be purchased on a foreign stock exchange. *List of American ...
*
Gold exchange-traded product Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that are used to own gold as an investment. Gold exchange-traded products are traded on the major stock exchanges including t ...
*
Silver exchange-traded product Silver exchange-traded products are exchange-traded funds (ETFs), exchange-traded notes (ETNs) and closed-end funds (CEFs) that aim to track the price of silver. Silver exchange-traded products are traded on the major stock exchanges including ...
*
UCITS The Undertakings for Collective Investment in Transferable Securities Directive (UCITS2009/65/ECis a consolidated EU directive that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation fro ...


References

Exchange-traded products {{econ-stub