The Investment Act of 1940 set up the rules that mutual funds must adhere to. The act says, among other things, that mutual funds cannot actively trade throughout the day. However, when Congress passed these laws, it granted exemption powers to the Securities and Exchange Commission (SEC). The SEC oversees all U.S. investment activity. Investment companies intending to offer ETFs must apply to the SEC in writing for the necessary exemptions.
In 1989, the Toronto Stock Exchange introduced Toronto Index Participation Units. These were the first ETFs to be traded on any exchange. Then, in 1993, the American Stock Exchange entered the game with its own ETF, Standard and Poor’s Depositary Receipts (SPDRs, pronounced “spiders”). SPDRs track the performance of the S&P 500. The other major investment firms quickly followed suit, and today there are hundreds of actively traded ETFs on the market.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018