An exchange-traded product (ETP) is a regularly priced
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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 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 and
bonds, are not considered ETPs.
ETPs are often benchmarked to
indices,
stocks,
commodities, or may be actively managed. There are several types of ETPs, including:
*
Closed-end funds (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 Exc ...
(NAV)
*
Exchange-traded derivative contracts
*
Exchange-traded funds (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 notes (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 ...
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 ...
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 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_ETPs.html"_;"title="Leverage_(finance).html"_;"title="nowiki/>Leverage_(finance)">leveraged_ETPs">Leverage_(finance).html"_;"title="nowiki/>Leverage_(finance)">leveraged_ETPscan_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_Efficient-market_hypothesis.html" ;"title="Leverage_(finance)">leveraged_ETPs.html" ;"title="Leverage_(finance).html" ;"title="nowiki/>Leverage (finance)">leveraged ETPs">Leverage_(finance).html" ;"title="nowiki/>Leverage (finance)">leveraged ETPscan 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 Efficient-market hypothesis">any new information.
This means that the momentum is due to automatic actions from the ETFs when responding to temporary price pressures.
See also
*List of exchange-traded funds
*Gold exchange-traded product
*Silver exchange-traded product
* UCITS
References
Exchange-traded products
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