Are you sure you want to change languages?
The page you are visiting uses a different locale than your saved profile. Do you want to change your locale?
Liquidity is one of the most important features attracting a diverse group of investors to exchange traded funds (ETFs). Here, we explain the mechanics of ETF trading and the roles played by key members of the liquidity ecosystem.
An exchange traded fund (ETF) is an investment vehicle whose shares trade intraday on stock exchanges at market-determined prices. ETFs are unique in that they offer two markets for trading — the secondary market, where most investors trade, and a primary market that supports the ETF’s liquidity and allows it to trade close to Net Asset Value throughout the day.
The below explains the key ETF trading activities highlighted in Figure 1.
ETFs’ unique creation and redemption process and secondary market trading involve a number of capital markets players who contribute to the ETF liquidity ecosystem, including:
Each of these capital markets players contributes to ETFs trading more efficiently throughout the day, which benefits both buyers and sellers. There are also economic benefits for the capital markets participants.
The ETF issuer develops ETF products, determines fund investment objectives, manages the ETF portfolio according to the fund’s objectives and oversees day-to-day operations. Within the organization, these three functions deal with market liquidity:
State Street launched the first US-listed ETF in 1993 — the SPDR® S&P 500® ETF (SPY). Since then, ETFs have become an increasingly popular investment vehicle for both individual and institutional investors. Improving education about how ETFs are structured and traded is vital to helping investors understand the potential benefits of investing in ETFs.
Our clients are the world’s governments, institutions and financial advisors. To help them achieve their financial goals we live our guiding principles each and every day:
For four decades, these principles have helped us be the quiet power in a tumultuous investing world. Helping millions of people secure their financial futures. This takes each of our employees in 27 offices around the world, and a firm-wide conviction that we can always do it better. As a result, we are the world’s third-largest asset manager with US $3.06 trillion* under our care.
* This figure is presented as of June 30, 2020 and includes approximately $69.52 billion of assets with respect to SPDR products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated.
ssga.com
spdrs.com
State Street Global Advisors
One Iron Street, Boston MA 02210.
T: +1 866 787 2257
Important Risk Information
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns. There can be no assurance that a liquid market will be maintained for ETF shares.
Standard & Poor’s® , S&P® and SPDR® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index. State Street Global Advisors Funds Distributors, LLC Member FINRA, SIPC.
© 2020 State Street Corporation.
All Rights Reserved.
3396780.1.1.AM.RTL
Exp. Date: 01/31/2022