The New York Stock Exchange is raising the exchange traded fund stakes.
The exchange, owned by Intercontinental Exchange (ICE), will soon start listing exchange traded funds (ETFs) directly on the NYSE floor, just like any major stock or initial public offering. Currently, exchanged traded funds trade on the NYSE Arca exchange, a fully electronic exchange with no human touch.
“ETFs today, listed in the United States, are all on electronic exchanges,” said Douglas Yones, head of exchange traded products at the New York Stock Exchange. “They do trade today, but computer to computer -- we’re targeting later this year [to] list ETFs on the floor of the New York Stock Exchange with a designated market maker.”
Even with the rise of electronic trading, human market makers ensure newly traded securities are priced right and have ample liquidity.
“[With designated market makers], you’ve got this human element that comes into play when you’re trading stocks,” Yones said. “[Humans] can reduce volatility, they can add liquidity - it’s not just a computer talking to a computer. We want to add those benefits that are here on the NYSE floor to the ETF industry.”
What is an exchange traded fund?
An ETF is a group of stocks surrounding a particular sector, like tech or financials, or a specific investing theme, such as high dividend yielding stocks. There are even ETFs focused on stocks within a geographic area, such as European stocks or Brazilian stocks. Perhaps the most notable ETFs are ones tracking the three major stock indexes, the S&P 500 (^GSPC), the Dow Jones Industrial Average (^DJI) and the Nasdaq (^IXIC). ETFs are not limited to stocks — there are bond ETFs too.
There is roughly $4 trillion in assets under management within ETFs in the U.S. Some 80% of this figure is listed on NYSE Arca, according to the quarterly NYSE Arca ETF Report.
“The growth [of ETFs] has been in the last five or ten years,” Yones mentioned, referring to the benefits ETFs offer in terms of diversification and the ability to trade like a stock.
While mutual funds also offer access to a large portfolio of stocks, their price is determined once per day after the markets close. ETFs trade like stocks with constant price fluctuations.
Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.
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