PrefBlog

There’s an interesting story on Bloomberg about the invention of the ETF:

Yet, as [Nathan] Most and [Steven] Bloom were discovering at AMEX in 1988, the SEC had essentially requested the ETF’s very creation. “The theory presented was that it would be possible to create baskets of key stocks available for sale,” says David Ruder, a professor of law at Northwestern University who was SEC chairman from 1987 to 1989. “Those baskets would then be able to be sold without causing the whole market to collapse.” It was just a suggestion, Ruder says, and one the SEC didn’t expect anybody to act on. Bloom remembers another detail he and Most latched onto: He recalls the SEC indicating that if someone wanted to engineer such a product, the agency might grant approval quickly.

The AMEX team dropped everything else and dove in. “We were essentially reverse-engineering what the SEC called for in their report,” Bloom says. “We viewed it as a product proposal being made by the regulators.”
…
Most, who studied physics at the University of California at Los Angeles before serving as a Navy submarine engineer during World War II, ultimately found inspiration from his time in commodities—first as a trader for Pacific Vegetable Oil, then as president of the Pacific Commodities Exchange. As Most knew, commodities are typically stored in warehouses, which issue ­receipts that can then be traded. “You store a commodity and you get a warehouse receipt,” Most later recounted for ETF.com founder Jim Wiandt. “You can sell it; do a lot of things with it. Because you don’t want to be moving the merchandise back and forth all the time, so you keep it in place and you simply transfer the warehouse receipt.”

He and Bloom wondered why that same concept couldn’t be applied to a basket of equities.

It was a superb day for the Canadian preferred share market, with PerpetualDiscounts gaining 40bp, FixedResets winning 155bp and DeemedRetractibles up 51bp. The Performance Highlights table is lengthy. Volume was average.

This entry was posted on Tuesday, March 8th, 2016 at 1:48 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.