6: Who's behind ETFs?

Exchange-traded funds (ETFs) are brought to market by a fund sponsor, with the help of other organizations:

  • The fund sponsor (also known as the fund manager) creates and runs the ETF. The sponsor designs the ETF, applies for regulatory approval, and establishes procedures for assembling the underlying basket of securities and bringing the ETF shares to market (see how ETFs work). Barclay’s Global Investors, for example, is the largest ETF fund sponsor by market share.
  • The index creator. ETFs are based on indexes: formulas that determine the composition of a basket of securities. Perhaps the best known is the S&P 500, created and managed by Standard and Poor’s. Index creators typically license the rights to use an index to a fund sponsor. In some cases the index creator may also be the fund sponsor (see how indexes work).
  • The exchanges. Like stocks, all ETFs trade on an exchange, such as the Amex or NYSE.
  • Brokerage firms sell listed ETFs to investors just as they would any other security. In some cases brokerage firms are also sponsors/managers of ETFs.