ETF - what is it? ETF on the Moscow Exchange

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Do not all people know what an ETF is? What it is? This abbreviation stands for Exchange Traded Fund. Now the popularity of these assets has increased so much that many investors have managed to appreciate their benefits. Given the "youth" of this phenomenon, this is an amazing breakthrough in modern market relations.

ETF - what does it mean?

ETFs are investment funds that include a portfolio of exchange-traded assets. These include various stocks, currency pairs and bonds. Moreover, the investor himself can manage this portfolio. This reduces the costs of a person who decides to invest his money in the purchase of assets. An ETF trader is actually trading a basket of certain trading instruments.

How were ETFs created?

These funds first appeared in the late eighties of the 20th century. At this time, the first analogues of ETFs were created. They were exchange-traded funds that were traded on the US stock exchange and AMEX. In addition, ETF transactions were also available on the Philadelphia stock exchanges.

However, trading in these instruments was soon cancelled. This happened after the Chicago Mercantile Exchange filed a lawsuit against ETFs-exchange-traded funds. The essence of the claim was that the ETFdoes not comply with the rules of the regulator. But this did not stop the players who became interested in new features.

Further development

Thus, the idea itself has not lost its relevance, and was appreciated. After that, a new financial instrument for trading appeared on the stock exchange in the city of Toronto. Exchange-traded funds successfully competed for investor attention. On the stock exchanges in other countries, rules were developed that met the requirements of the US regulator.

SPY became the most popular fund. It was a depository receipt for the SP500 stock index. In addition, MDY has become popular with players. It included shares of companies with an average capitalization.

ETFs

What did this mean for further development? Market participants reacted positively to the idea of exchange-traded funds. Shortly thereafter, the American exchange became able to trade exchange-traded funds. They were created specifically for each sector of the economy that was included in the SP500 index. So 9 new ETFs were formed. Later, this list included DIA - a fund for the DJ30 index. In 1998, another financial instrument appeared - QQQ, designed for Nasdaq100.

What are the features of an ETF?

Unlike other instruments, ETFs have several advantages:

1. They save the investor money as the buyer of the ETF does not have to pay for portfolio management.shares. As a result, the profit of the investor owner is used more rationally.

2. When buying, an investor invests in a ready-made portfolio. It contains the best securities that are highly liquid. This reduces the investor's risk.

3. Buyers expect to make a profit for a long time. An investor does not have to deal with complex financial calculations. It is enough to buy a ready-made ETF portfolio and receive a stable income. Moreover, liquid assets can be sold at any time.

Russian situation

ETF in Russia also takes place. In our market, securities are traded exclusively by one company - FinEx, which issued more than 10 different index securities (ETFs). The securities have been openly available since the beginning of 2013 and fall under the regulations of the Russian law of 1996 on the securities market.

The issue is provided by Irish issuers FinEx Physically Backed Funds Plc and Funds Plc. Management functions are performed by FinEx Capital Management LLP, which has a British legal registration. The Office for Supervision and Financial Regulation, the so-called listing, is carried out through the participation of the British regulator FSA. On the territory of the Russian Federation, the registration of a subsidiary of OOO MC FINEX-PLUS, which has a license from the Central Bank and has the status of a full-fledged market participant, was carried out.

Bank of New York Mellon is the administrative center andPricewaterhouse-Coopers as auditor. The Bank of New York Mellon also provides depositary services and fund savings. As in domestic mutual funds, the property of the management company is separated from the property of the fund. The functions of regulation and supervision are performed by the National Bank of Ireland.

The papers were submitted to the cross-listing procedure in order to organize the circulation of ETFs on the Moscow Exchange, since part of the funds is circulated on the Euromarket. ETF liquidity is a very important feature. A special market-meeting system serves to maintain demand in the order book for sale and purchase. Well-known financial companies, the main Russian market makers Jane Street Financial Limited, Goldenberg Hehmeyer, Bluefin Europe, who also work with ETFs, are working hard to solve this problem. What does this mean? Through the participation of the Russian broker Finam, these corporations can gain access to the Russian market.

Investors are also required to have information that the ETF on the Moscow Exchange, thanks to the cross-listing, meets both European and Russian stock market requirements. Today, the purchase involves the presence of 13 types of funds from FinEx. Investments in ETFs, as well as investments in mutual funds, require a detailed study of the operation of the fund and its features.

What you need to know about investing

In the field of stock investments, there is such an important concept as index replication, which can be synthetic and physical. Physical replication involves the presence in the fund or its portfolio of shares or another type of property as the underlyingportfolio.

Synthetic replication means that there are various financial instruments in the portfolio, for example, options, forwards, futures. FinEx ETFs that are based on gold, for example, are synthetic because they use a gold futures contract. Index ETFs such as FinEx CASH EQUIVALENTS UCITS ETF and FinEx Tradable Russian Corporate Bonds UCITS ETF (RUB) have a mixed fund structure. They use both underlying instruments and derivatives. The investor may only have access to the full structure of funds prior to the purchase transaction, and not be published on a permanent basis.

Currency requirements

Participation on the Moscow Exchange implies a requirement to nominate securities in Russian rubles from the management company. ETF assets are settled in euros, US dollars or British pounds. Thus, at the market rate, the dollar is recalculated in the currency market. This phenomenon has both pluses and minuses. The positive side may manifest itself in the form of income from the devaluation of the ruble, and the negative side may be expressed in the form of a decrease in the prices of reserve currencies. However, the currency dynamics of well-developed countries indicates that currencies such as the euro and the dollar have strong long-term prospects. In the case of trading in other monetary units, the above problems may also arise.