Canadian Financial Market: Portfolio Analysis

In the late 1970s and the early 1980s, the concept of “portfolio trading” or “program trading” was initiated to trade an “all-inclusive” portfolio, in most cases a portfolio that is made up of all the S&P 500 stocks in one order placed at a major brokerage firm (Gastineau, 2001). In the early 1990s, the development and innovation in technology along with the ever-increasing demand of trading in “all-inclusive basket” in the financial market pushed the creation of the first index-based funds with the characteristics of equity on the Canadian stock exchange markets (Deville, 2007). The advent of the Toronto Index Participation units (TIPs), which was designed to track the Toronto 35 index (TSE-35) gained huge popularity and attracted substantial investments not only in the domestic Canadian market but also from international investors (Gastineau, 2001). After three years of prosperity in the Canadian market, the first Exchange-Traded Fund in the U.S. market, known as the Standard & Poor’s Depository Receipts (SPY or SPDR) was introduced by the American Stock Exchange (AMEX) in 1993, with the goal of tracking the Standard & Poor’s 500 Index (Gastineau, 2001).

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The authorized participants contract with the ETF sponsors or providers to create ETF shares in large blocks called “creation units”, normally consists of 50000 shares, which then they can hold the shares by themselves or sell to individual investors in smaller share stacks. ETF shares can be listed on several stock exchanges, where the retail investors could trade them like the stocks of a publicly listed company (Shreck & Antoniewicz, 2012). In contrast to the creation process, the authorized participants also have the rights to redeem ETF shares for equal value of securities or