A Senate panel is looking at the rising popularity of Exchange-Traded Funds (ETFs) in the financial markets. A Senate Banking subcommittee, chaired by Sen. Jack Reed (D-RI), is asking leaders in the financial industry, who often defend ETFs, about trading practices and the impact of ETFs on the stock market and the economy.
Once bought and sold by large institutional traders, day traders have begun trading the popular devices which now account for 40% of trading volume. Critics say they have increased the volatility of the financial markets and led to the stock market crash in 2010. But Eric Noll, and executive vice president of NASDAQ, disputes that claim. He told Senator Reed that he has not "seen any signs that ETFs contribute to volatility."
ETF’s are bundles of stocks or commodities and are similar to mutual funds except that they can be traded throughout the day, whereas shares of mutual funds can only be bought and sold at the end of the day.