Ivers W Riley and the SPY
I have been involved with Exchange Traded Funds since their inception in 1993. This year 2013 marks the twentieth anniversary of first exchange traded funds. My father,Ivers W Riley, was the driving force in charge of the development and listing of the first and most famous ETF known as SPY or Spiders. The American Stock Exchange ,where both my father and I worked, has been an incubator for many great and innovative financial products over the years but none more successful than SPDR.
SPDR was the acronym for Standard and Poor's Depository Receipt. The ability to buy and sell the entire S&P 500 in a single transaction anytime during the day was very attractive to asset allocation and to the trading community. The ability to arbitrage the components vs the ETF kept the SPY price very close to NAV and provided fair pricing and liquidity.The following 2 paragraphs are taken from a NY Times 1993 article shortly after the SPY trading debut.
With stockbrokers busily peddling spiders, "interest from individual investors has been higher than expected," said Ivers Riley, senior executive vice president for the Amex.
But spiders' natural competitors aren't impressed. "We don't think they pose any competitive threat because spiders are designed for speculators, while index mutual funds are better for investors," said John C. Bogle, chairman of the Vanguard Group, the biggest sponsor of index funds.
So my father's comment in 1993 was an understatement to say the least. Today nearly $2 trillion dollars are managed in exchange traded funds. The industry has evolved quite a bit over the last 20 years as exemplified by the attendance this week in Hollywood Florida at the Index Universe Conference. Many new participants and fund types now exist, however in my opinion not all of the evolution has been good. I have been trading and continue to manage assets using ETF's as a Registered Investment Advisor but there are some ETF listings out there that can be very harmful to average investors. The complexity and fees associated with many of the leveraged ETF's have produced very poor intermediate and long term performance. In addition to performance the potential for large losses exist due to the highly levered nature of options listings on levered ETF's. The combination of High Frequency Trading ( HFT) and levered and inverse-levered ETF's can lead to extremely sharp moves and liquidity vacuums. This may have contributed to the flash crash. Tom Peterffy , the well known pioneer in electronic derivatives trading and brokerage , has repeatedly warned regulators and officials about this dangerous mix.
There is much more room for innovation in this industry and as derivative products come out of the dark back rooms of banks onto exchange trading platforms all potential investors will receive transparency and the regulators will be able to more accurately monitor risks and margins in real time. That is a welcome thought for all participants.
These first twenty years of ETF's have been phenomenal and I expect they will exist for another 100 years. I am very proud to have been involved from the very beginning and proud of my father Ivers W Riley.
Disclosure: I am short SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am currently short spy and always have positions in various liquid exchange traded funds. This article is about an anniversary and our overall position is neutraland not relevant to the discussion.