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Today, I discovered that the SPDR S&P 500 ETF Trust (NYSE: SPY) is structured differently from most other ETFs; it appears to be structured as a Unit Investment Trust (UIT). I know that UITs have a termination date, so I looked into SPY's prospectus and found this in the "Organization of the Trust" section (page 49):

The Trust has a specified lifetime term. The Trust is scheduled to terminate on the first to occur of (a) January 22, 2118 or (b) the date 20 years after the death of the last survivor of eleven persons named in the Trust Agreement, the oldest of whom was born in 1990 and the youngest of whom was born in 1993. [...]

  • Why was SPY designed to terminate?
  • Does it matter that SPY will eventually terminate? What implication does this structure of SPY have on regular investors? Is the structure advantageous or disadvantageous in any way, relative to other S&P 500 ETFs that have no termination date?
  • Will SPY really disappear after 2118?
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    And this 2118 date matters to you why? – Bob Baerker May 20 '20 at 12:41
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    @BobBaerker I think that's the question... whether or not it should matter. – glibdud May 20 '20 at 12:47
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    Assuming all 11 named persons are still living, it will terminate sometime between 2040 and 2118. To last until 2118, at least one of them would have to live to be over 105 years old (or older, if it isn't the youngest). As far ending in 2118 (as opposed to earlier), that won't be determined until 2098. – yoozer8 May 20 '20 at 13:19
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    Given the huge volume of trading in the SPY and its options as well as all of the individuals and institutions that own and/or trade them, do you think that it's conceivable that the Trust would allow the SPY to disappear into the ether? Isn't it more realistic that the Trust would be extended or reestablished? – Bob Baerker May 20 '20 at 15:07
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There was an article about this in Bloomberg not long ago. The short story is that pegging the trust termination date to the end of life of those eleven persons allowed for a more distant termination date (keeping in mind that unit investment trusts need a termination date).

The Fate of the World’s Largest ETF Is Tied to 11 Random Millennials

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    Man, you could make a pretty good crime novel around that. – ceejayoz May 20 '20 at 20:09
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The root cause of this is probably the "Rule against perpetuities" - essentially, in many jurisdictions, you can't write trusts that last indefinitely.

The rule is that

No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.

So by picking several people who are very young as the basis of the life of the trust, you can spin it out as long as possible.

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  • Why do some other ETFs not have this limitation? – Flux May 26 '20 at 2:39
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    @Flux I guess they've subsequently found better ways to do it than setting it up as a Unit Investment Trust. – GS - Apologise to Monica May 26 '20 at 6:13

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