"It's not a bug. It's a feature."
This aphorism, largely used to describe peculiar computer programming outcomes, should be emblazoned on the banner of the exchange-traded fund industry during times of market volatility.
As asset prices sank and capital markets gyrated over the past few weeks, several truths about the ETF market were reinforced as products were tested across the board. Somewhat fortuitously, ETFs have endured a series of challenges since the financial crisis that fortified them: the flash crash of May 6, 2010, municipal bond ETF discounts in 2013 and another flash crash on Aug. 24, 2015. On the other side of each of these scenarios, ETF investors, traders, regulators and exchanges emerged with a better understanding of how the products should price and trade.
While the recently volatility isn't ETF-specific, ETF trading surged to a record $1.4 trillion in the second week of March, according to BlackRock Inc., and accounted for 38% of all U.S. trading activity on stock exchanges from Feb. 24 to March 13. These moves have shined a spotlight on several features of the ETF market.