What is an ETF?

An ETF, or exchange-traded fund, is an investment vehicle that holds a basket of securities—like stocks or bonds—and trades on an exchange throughout the day, just like a stock. Unlike mutual funds, which price once at the end of each trading day, ETFs offer real-time pricing and flexibility.

The first ETF was launched in 1993 by State Street Global Advisors—the SPDR S&P 500 ETF. For decades, launching a new ETF required exemptive relief from the SEC—essentially a waiver allowing the fund to operate in ways that technically violated provisions of the Investment Company Act of 1940. ETFs didn't fit neatly into regulations designed for mutual funds, so each sponsor had to individually petition the SEC.

In 2019, the SEC's new ETF Rule eliminated the need for individual exemptive relief by creating a standardized regulatory framework specifically for ETFs. This streamlined approval and opened the door for more active management, customized approaches, and specialized portfolios—transforming ETFs into versatile tools for modern investors.