When it comes the price of an ETF, I understand that it reflects the value of the underlying assets.

What happens where a company that issues ETF comes into play on the decision of people whether to buy or not the specific ETF?

Let's say the ETF issuing company develops a "bad reputation" or even goes bankrupt. Or perhaps the competition drives people to buy other equivalent ETFs with lower fees.

Is this a realistic danger or is my thinking incorrect?

  • Can you edit and add country tag. Regulations slightly vary depending on jurisdiction – Dheer Feb 7 '19 at 17:03

Typically, and potentially as a requirement from the SEC, an ETF actually involves a small variety of separate legal entities.

Very basically:

  • the assets are held by some sort of custodial entity.

  • the management is performed a separately organized and operated legal entity.

Usually a management company will manage multiple ETFs. Should the management entity become insolvent the assets of the separate custodial entity are shielded.

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  • Thank you for your answer. What happens in the case where i want to sell a big amount of ETFs from a specific entity (lets say for a popular index like sp500) but noone wants to buy because of the entity? how can one avoid such "liquidity" problems? – traveler24662 Feb 8 '19 at 6:10
  • Even if something happened to the management entity all of the assets of the fund would still safely be stored in the holding entity. – quid Feb 8 '19 at 8:23

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