History of ETFs - Part 2

Updated: Jan 28

In the last article (History of ETFs - Part 1) we looked at how Black Monday (the stock market crash of 1987) was instrumental in ETFs getting started. The idea came out of 2 AMEX (American Stock Exchange) product development gurus seeing an SEC report on the event and the steps they had to go through to create the beloved product we have today. In today's session we look at what happened after that initial approval to create the first ETF (which was SPY) in 1993.

As a reminder, the details in this article mainly come from the great work done by Bloomberg in their special podcast, "The ETF Story" available here: https://open.spotify.com/show/0j03M8cOnnsI1nNfOTqPya

The Competition

We start with how The Palo Alto Research Center (PARC), who Steve Jobs visited and gained ideas to create the first Apple Mac, resonates with the story of ETFs. In this case, the 1987 Market Break report was instrumental in the creation of the ETF by Nate Most and Steve Bloom.

Others also tried to come up with collective investments that traded like stocks. There were products like SuperShares and TIPs which all could have turned into the main way of trading baskets of stocks we now know as ETFs. There were firms like Leland, O'Brien and Rubinstein that held portfolio insurance products (which were credited with contributing to Black Monday). They had, what they say, was the initial idea for ETFs in the form of SuperShares. They then took that idea to the AMEX under a handshake agrement of not having AMEX compete but said that the latter didn't hold up their end of the bargain.

Whilst SPY was waiting for approval - the TIPS product (Toronto Index Participation Shares) was launched in 1990 (before SPY approval). With a more