Bucking the Trend: The Unsupportability of Index Providers' Imposition of Licensing Fees for Unlisted Trading of Exchange Traded Funds
Exchange traded funds (ETFs) are popular investment products that have recently generated substantial investment press, several new regulations, huge earnings for the securities markets, and potential legal conflicts that will likely lead to major litigation. ETFs are derivative securities that represent ownership in funds, unit investment trusts, or depositary receipts with portfolios of securities designed to track the performance and dividends of specific securities indices.' ETFs track indices by holding a representative sampling of securities in the index, thus approximating investment results of the index as a whole. They may or may not hold all the stocks in a particular index in weighted proportion. Exchange traded funds, while conceptually similar to mutual funds, trade more like common stock because their net asset value is determined throughout the day. A mutual fund's net asset value is determined at the end of the trading day after the fund manager has made his trades. Exchange traded funds, however, trade rapidly in response to changes in the value of fund components and "changes in prices of options and futures contracts on the funds.' A large enough bloc of ETF shares, called a "creation unit," may be exchanged for stock in the companies forming the tracking portfolio. Exchange traded funds are popular with investors because they offer a diversified, low-cost, tax-efficient method of investing.
Peter N. Hall,
Bucking the Trend: The Unsupportability of Index Providers' Imposition of Licensing Fees for Unlisted Trading of Exchange Traded Funds,
57 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol57/iss3/6