The Individual Investor’s Guide to Exchange-Traded Funds 2013
The exchange-traded fund (ETF) industry marked its 20th anniversary this year.
The SPDR S&P 500 ETF (SPY) was incepted on January 22, 1993, after being conceived and championed by the late Nathan Most. According to Institutional Investor Magazine, Most came up with the idea while seeking new revenue opportunities for the American Stock Exchange (Amex). Using commodities as a basis, he thought of a product where a depository would hold blocks of securities and issue receipts for them, which in turn could be divided into many small pieces tradable on the exchange. (SPDR is an acronym for Standard & Poor’s depositary receipts.)
The genius of Most’s creation was that it allowed institutional investors a mechanism for hedging their portfolios, while offering individual investors an easy way of buying and selling shares in an index. This was an important point because, as Institutional Investor Magazine notes, the 1987 crash made the Securities and Exchange Commission (SEC) more receptive to proposals for what were then new hedging products. Nonetheless, it took Most six years to get approval from the Amex and then the SEC before the SPDR S&P 500 fund was launched.
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