Testimony: Kauffman Foundation on ETFs Danger to Capital Formation

Testimony

ETFs and the Present Danger to Capital Formation

Prepared Testimony by Harold Bradley and Robert E. Litan

Before the United States Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investments

ETFs have increasingly distorted the role of equities
markets in capital formation, while posing systemic risks from potential
settlement failures.

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Paper: Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions

Paper

Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions

Harold S. Bradley and Robert E. Litan

Kauffman Foundation, 8 November 2010

We show here that ETFs are radically changing the markets, to the point where they, and not the trading of the underlying securities, are effectively setting the prices of stocks of smaller capitalization companies, or the potential new growth companies of the future. In the process, ETFs that once were an important low-cost way for investors to assemble diversified stock holdings are now undermining the traditional price discovery role of exchanges and, in turn, discouraging new companies from wanting to be listed on U.S. exchanges.

Continue reading “Paper: Choking the Recovery: Why New Growth Companies Aren’t Going Public and Unrecognized Risks of Future Market Disruptions”