ETF belongs to Shanghai Stock Exchange. The first ETF in China was listed on Shanghai Stock Exchange-SSE 5ETF. This ETF adopted the complete replication method, and then the sampling replication method began to appear in China.

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Similarities and differences between Shenzhen Stock Exchange lof and Shanghai Stock Exchange ETFs

Similarities between LOF and ETFs

1. Both ETFs and LOF have primary and secondary markets at the same time, which can be purchased and redeemed through fund sponsors, managers, banks and other agency outlets like open-end funds. At the same time, it can also be traded through the exchange system like closed-end funds.

Second, there are arbitrage opportunities in theory

Due to the coexistence of the above two trading methods, the purchase and redemption prices depend on the net asset value of the fund unit, while the market transaction price is formed by system matching, mainly determined by market supply and demand, and there is likely to be a certain degree of deviation between them. When this deviation is enough to offset the transaction cost, there is a theoretical arbitrage opportunity. Investors can get the difference income by buying low and selling high.

Third, the discount premium is small

Although the transaction price of the fund unit is affected by the relationship between supply and demand and the market of the day, it always fluctuates around the net value of the fund unit. Because of the existence of the above arbitrage mechanism, when the deviation between the two exceeds a certain degree, it will lead to arbitrage behavior, thus making the transaction price return to the net value, so its discount premium level is much lower than that of simple closed-end funds.

4. Low cost and strong liquidity

There is no need for subscription and redemption fees during the transaction, and only .5% of bilateral fees are required. In addition, due to the existence of both primary market and secondary market, the liquidity is obviously stronger than that of ordinary open-end funds. In addition, ETF is a passive investment, and the management cost generally does not exceed .5%, which is far lower than the 1%-1.5% level of open-end funds.

differences between LOF and ETF

1. different types of funds are applicable

ETF is mainly a passive investment fund product based on a certain index, and lof can be used not only for passive investment fund products, but also for economic investment funds, although it also adopts the way of listing open-end funds on the exchange.

second, the targets of subscription and redemption are different

in subscription and redemption, ETF exchanges fund shares and "package" stocks with investors, while LOF exchanges fund shares with investors in cash.

Third, the threshold for participation is different

According to foreign experience and the design scheme of Huaxia Fund SSE 5ETF, the basic unit for subscription and redemption is 1 million fund units, with a high starting point, which is suitable for institutional customers and powerful individual investors; The subscription and redemption of LOF products, like other open-end funds, start from 1 fund units, which is more suitable for small and medium investors to participate.

fourth, the arbitrage operation mode and cost are different

ETF must buy and sell a package of stocks in the process of arbitrage trading, which involves both the fund and the stock market, while the arbitrage trading of LOF only involves the fund trading. The more prominent difference is that according to the design of ETF in Shanghai Stock Exchange, it provides investors with real-time arbitrage opportunities and can realize T+ trading, and its transaction costs are mainly impact costs besides transaction costs; At present, the trading design of LOF in Shenzhen Stock Exchange is that the fund units for subscription and redemption and the fund units for market trading are managed by China Registration System and China Clearing Shenzhen Branch respectively. Trading across the subscription and redemption market and the exchange market must go through the transfer custody between systems, which takes two trading days, so LOF arbitrage has to bear the waiting cost, which further increases the arbitrage cost.

the market impact of LOF and ETF

1. the impact of lof

the launch of lof provides investors with a new exit way and a convenient trading method for investing in funds.

with the launch of LOF products, it is likely to lead to the decline of subscription and redemption fees of open-end funds in China at present. Because, for investors, if the gap between the transaction cost of the secondary market and the cost of the first-level subscription and redemption is too large, it is likely that the subscription will be unfavorable at the time of issuance, but the transaction will be active after listing on the exchange.

LOF can also build a bridge between closed-end funds and open-end funds, providing a good technical platform, which can be extended to solve the problem of turning closed-end funds into open funds if it is implemented smoothly.

second, ETF influences

ETF's investment strategy of completely copying the index will further promote the application of indexed investment concept in China stock market. ETF funds closely follow a representative index. When an investor buys a fund unit, it is equivalent to buying all the stocks of this index by weight. Therefore, as long as this index can fully reflect the trend of the general trend, investors will not have the situation of "making an index but losing money", and the profit and loss can be correctly determined depending on the trend of the general trend.

ETF provides the arbitrage function of the underlying index, which will attract a large number of investors to invest in the constituent stocks of the corresponding index, and keep a close eye on the deviation between the ETF price and the portfolio value of the constituent stocks at all times, and carry out a large number of arbitrage operations until this deviation returns to the scope of no arbitrage space. These frequent and massive arbitrage transactions will improve the activity of the underlying stock, thus promoting the liquidity of the underlying index, reducing the fluctuation of the index and maintaining market stability.