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Today, I discovered that the SPDR S&P 500 ETF Trust (NYSE: SPY) is structured differently from most other ETFs; it appears to be structured as a Unit Investment Trust (UIT). I know that UITs have a termination date, so I looked into SPY's prospectus and found this in the "Organization of the Trust" section (page 49):

The Trust has a specified lifetime term. The Trust is scheduled to terminate on the first to occur of (a) January 22, 2118 or (b) the date 20 years after the death of the last survivor of eleven persons named in the Trust Agreement, the oldest of whom was born in 1990 and the youngest of whom was born in 1993. [...]

  • Why was SPY designed to terminate?
  • Does it matter that SPY will eventually terminate? What implication does this structure of SPY have on regular investors? Is the structure advantageous or disadvantageous in any way, relative to other S&P 500 ETFs that have no termination date?
  • Will SPY really disappear after 2118?
Flux
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2 Answers2

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The root cause of this is probably the "Rule against perpetuities" - essentially, in many jurisdictions, you can't write trusts that last indefinitely.

The rule is that

No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.

So by picking several people who are very young as the basis of the life of the trust, you can spin it out as long as possible.

Ganesh Sittampalam
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There was an article about this in Bloomberg not long ago. The short story is that pegging the trust termination date to the end of life of those eleven persons allowed for a more distant termination date (keeping in mind that unit investment trusts need a termination date).

The Fate of the World’s Largest ETF Is Tied to 11 Random Millennials

C8H10N4O2
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