ETF, Stock Exchange Interconnection and the Looming Problems

Abstract

The growing presence of the exchange-traded fund (ETF) has been a crucial development on the investment scene since its advent in the mid-1990s. The surge of popularity for ETFs, as well as the phenomenal pace of their growth, is a fact that can be observed everywhere in stock market trading. This paper examines the legal rules, the types and workings of ETFs, and their role in promoting stock exchange interconnection. The surge of ETFs does not come without its questions and concerns, however. With the analysis provided in this article, the potential problems, mostly notably the systemic risk showcased in the flash crash of August 24, 2015, and the inherent problem of derivative investing, are discussed. This paper concludes with a careful balancing of the benefits and perils presented by this innovative investment product.