A compliance reviewer is analyzing educational materials intended for retail investors regarding the structural differences between Exchange-Traded Funds (ETFs), Unit Investment Trusts (UITs), and open-end mutual funds. Which of the following statements correctly describe the trading mechanics and operational features of these investment company structures?
- Exchange-Traded Funds (ETFs) trade continuously on secondary stock exchanges throughout the trading day at market prices, whereas Unit Investment Trusts (UITs) typically hold a fixed, unmanaged portfolio that terminates on a specified future date.Cevap
- BNewly issued units of a Unit Investment Trust (UIT) are purchased by retail investors on secondary stock exchanges from other trading investors rather than from the trust sponsor or underwriters.
- Shares of Exchange-Traded Funds (ETFs) can be purchased on margin and sold short in secondary market trading, whereas newly issued open-end mutual fund shares are non-marginable under Federal Reserve Regulation T for their first 30 days.Cevap
- DOpen-end mutual funds compute their Net Asset Value (NAV) continuously during market hours to execute retail transactions at real-time intraday prices.
Cevap
The statements correctly identifying ETF exchange trading dynamics versus unmanaged UIT portfolio structures, along with the ability to purchase ETFs on margin compared to new mutual fund shares being non-marginable under Regulation T, are the valid selections.
The correct options accurately highlight that ETFs offer continuous exchange trading and margin eligibility while UITs consist of unmanaged portfolios, and that mutual fund primary shares cannot be purchased on margin immediately under Regulation T.
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Anahtar Kavram
Distinguishing feature sets between open-end funds, ETFs, and UITs regarding pricing, margin eligibility, and secondary exchange trading.