Exploring the Differences Between ETFs and Traditional Open-End Companies and UITs

D

Exchange-traded funds (ETFs) are a type of investment company that is legally classified as either an open-end company or a unit investment trust (UIT). ETFs differ from traditional open-end companies and UITs in several ways, as explained below:

A. Pursuant to SEC exemptive orders:

ETFs are unique in that they are able to operate without being subject to the same restrictions as traditional mutual funds due to a series of SEC exemptive orders. These orders allow ETFs to operate in a different manner, with greater flexibility and lower costs, than traditional mutual funds. For example, ETFs are permitted to use derivatives to achieve their investment objectives, and are not required to sell securities to meet redemptions. Additionally, ETFs are able to offer investors exposure to niche areas of the market, such as commodities or emerging markets, that may be difficult or expensive for traditional mutual funds to access.

B. Shares issued by ETFs Traded on a secondary market:

ETFs differ from traditional mutual funds and UITs in that their shares are bought and sold on a secondary market, such as a stock exchange, rather than being bought and sold directly from the fund company. This means that ETF shares are traded like stocks, with their prices fluctuating throughout the trading day based on supply and demand.

C. Are only redeemable in very large blocks (Blocks of 50,000 shares for example):

Another important difference between ETFs and traditional mutual funds is that ETF shares are generally only redeemable in large blocks, typically 50,000 shares or more. This is because ETFs are designed to be traded on a secondary market, and the creation and redemption of shares is primarily done by large institutional investors known as authorized participants. These authorized participants are able to create or redeem ETF shares in large blocks, which helps to keep the ETF's market price in line with its net asset value.

D. All of these:

Therefore, the correct answer to the question is D: All of these. ETFs are unique investment vehicles that operate under SEC exemptive orders, issue shares that are traded on a secondary market, and are only redeemable in large blocks by authorized participants.