Visual Guide to ETFs

Closer Look at the SEC-CFTC Report Findings

Some very important features of the September 30, 2010, SEC report can shed some further light on what happened regarding ETFs. On page 39 of the report, we read, “A large majority of ETF market makers with whom we spoke, and particularly those that value underlying stocks as part of their normal market making activities, paused their market making for considerable periods of time starting at 2:45 P.M on May 6. We believe that this is one of the reasons equity-based ETFs were disproportionately affected by the extreme price volatilities of that afternoon.”⁴

One notable aspect of what happened is described at the very beginning of the report. On page 4, as part of the executive summary, the report describes ...