Who's in charge of managing exchange traded funds?

Oldman answered 3 months ago …

If you want an in-depth answer...go to the PowerShares-DB {Deutsche Bank} 230 pp pdf prospectus, which details how the indexes are constructed by th DB and how the pools of creation units are funded and managed.

This is particularly worthwhile reading,because these are commodity-trading grantor trusts and structured, for tax purposes, as though they were subunits of a MasterLimited Partnership...and on page 139, is a note of caution, regarding the tax-hazard of the UBTI for tax-sheltered entities...an IRA, for example.

In addition, there are details of the fees paid to DB for creating the indexes, for transmitting their K-1's to the ETF holders, and other items of costs.

The answer by "helpme" is a good, short answer, but in this prospectus, you can see the small, but not insignificant fees paid (they're much less than those charged by mutual funds that are actively managed which buy and sell shares of their holdings on a continuous basis)...and the number of times or occasions when these commodity-trading ETFs will readjust their portfolios...because the trading of the shares in "creation baskets" is an undisclosed cost...even though DB's brokerage doesn't pay a large retail comission, (such as you or I would), ETF's that change their composition on a quarterly or other basis, do rack up costs. Even the lowest cost VIPERs, from Vanguard, have substantial trading costs.

So the short answer: is the index-maker is responsible to the marketer for providing the data, and in the PS_DB series - the tax info, while the market maker is responsible for buying and selling the basket of stocks that makes up a "creation-basket" of securities that are fractionally divided for retail sale.

Large institutional investors will loan money to the market maker and hold the creation units on their books.

You, the retail investor, are purchasing fractional shares of the basket...and the market maker is charging a small fee for the record keeping of, e.g., which retail holder is entitled to the dividends or values from the fractional shares that are trade under the ETF symbol, and for posting the prospectus' and getting the SEC to agree to register the ETF and for advertising, etc..