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A survey of exchange-traded basket instruments

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Abstract

This survey discusses “basket” financial instruments generically known as Index Participation shares (IPs). An IP is a hybrid instrument that has characteristics similar to those of existing index-futures contracts, options contracts, and stock-index mutual funds. An IP is a contract and does not represent direct ownership over any individual security. Similar to other derivatives, an IP has a clearing house guaranteeing its performance and a zero net supply. The equilibrium market price of an IP will differ from its underlying index's cash price by an amount defined as the IP basis. The IP basis will be determined by the dividend stream of the underlying index and expected short-term interest rates. IP contracts opened trading on the AMEX and PHILX exchanges on May 12, 1989, after the SEC lifted a temporary stay of trading.

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Authors and Affiliations

  1. Division of Research and Statistics, Capital Markets Section, Board of Governors of the Federal Reserve System, 20551, Washington, D.C., USA

    Paul H. Kupiec

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  1. Paul H. Kupiec
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Kupiec, P.H. A survey of exchange-traded basket instruments. Journal of Financial Services Research 4, 175–190 (1990). https://doi.org/10.1007/BF00365421

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  • DOI: https://doi.org/10.1007/BF00365421

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