ETFs matter.  They can change the underlying nature of certain markets.  We have discussed this phenomenon a number of times, but most recently in regards to corporate bonds and gold.  Now we have the example of volatility as measured by the VIX.  It may now be the case that trading in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) is driving the VIX futures, as opposed to other way around.  Trading in the $VXX around the Fed announcement yesterday seems to make this point.  There are plenty of issues with the performance of this ETN, but one cannot deny its popularity.  It now frequently trades in excess of 30 million shares a day.  We are beyond the point of discussing whether these developments are good or bad for the market.  Above all investors (and traders) need to be aware that the introduction (and popularity) of exchange traded products can alter the way certain markets act.  In today’s screencast we once again caution investors to educate themselves on the rapidly changing world of ETPs.

Items mentioned in the above screencast:

What is going on with the VXX?  (Daily Options Report)

Is the VXX pushing VIX futures around?  (Don Fishback)

Post-QE2 a drop in the VIX is not altogether surprising.  (FT Alphaville)

Daily chart of the iPath S&P 500 VIX Short-Term Futures ETN (VXX).  (Finviz)