Market Impact of ETFs and Futures

Editor's note: This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.

Years ago, we had a simpler configuration of derivative and proxy instruments for the markets: index futures and options. More recently, exchanges and sponsors have introduced "emini" futures and exchange traded funds (ETFs), which have broadened the availability of speculative and hedging instruments to an even wider group of investors and traders.

There is much confusion, speculation, lack of knowledge, etc. regarding the impact of ETFs upon the overall market. The introduction of leveraged or "ultra" ETFs has only resulted in exacerbating the mystery of the effect of ETFs upon the indices, including the recent volatility that has gripped the markets from a day-to-day perspective and, more importantly, during the final half hour to hour of trading.

We need to look at these phenomena from three perspectives: ETF construction, trading activity and non-futures-related ETF/stock manipulation. ...