An exchange-traded product (ETP) is a regularly priced security which trades during the day on a national stock exchange. ETPs may embed derivatives but it is not a requirement that they do so – and the investment memorandum (or offering documents) should be read with care to ensure that the pricing methodology and use (or not) of derivatives is explicitly stated. Typically, individual underlying securities, such as stocks and bonds, are not considered ETPs.

Overview

ETPs are often benchmarked to indices, stocks, commodities, or may be actively managed. There are several types of ETPs, including: ETPs also qualify for advanced types of orders such as limit orders and stop orders. This is in contrast to traditional mutual funds which are only available for buying and selling at certain points in the day.

Regulation

On October 6 of 2021, SEC Chair Gary Gensler warned that leveraged exchange traded products present a risk to the "stability of financial markets" and called for tighter regulations on the "complex" products. He said "[ leveraged ETPs] can pose risks even to sophisticated investors and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions". Leveraged ETFs have been found to exaggerate intraday momentum. However, this momentum is often rebalanced at next trading day's opening as the momentum is not due to any new information. This means that the momentum is due to automatic actions from the ETFs when responding to temporary price pressures.