SPDR let investors trade the S&P 500 like a stock, and ETFs were born.

Index investing existed only through mutual funds, which priced once a day and made investors transact with the fund company. On January 22, 1993 the American Stock Exchange listed SPDRs, Standard & Poor's Depositary Receipts, an exchange-traded unit investment trust tracking the S&P 500, the first US-listed ETF.

The mechanism that made it work was in-kind creation and redemption. A 1997 Federal Register order described how an investor making a portfolio deposit into the trust received a Creation Unit composed of 50,000 SPDRs, and how the trust was structured so one SPDR's net asset value equaled one-tenth of the S&P 500 Index.

That convertibility is the engine: if the ETF trades above the basket, arbitrageurs create new units and sell them; if below, they buy units and redeem them. Trading the whole index as one share gave investors intraday liquidity, lower cost and tax advantages mutual funds could not match.

Trade portfolio as one share.

Creation and redemption in kind means the trust never liquidates holdings to meet redemptions.

Arbitrage between share price and basket value keeps the ETF close to its net asset value.

Exchange listing gave intraday pricing instead of a once-a-day fund price.

The structure could be copied, so one product turned into an industry.

Make a fund's shares convertible into the underlying assets and arbitrage does the market-making for you: price stays honest without a manager trading on your behalf.

SPY grew into the world's largest ETF; by 2023 State Street reported more than $355 billion in assets and average daily trading of $39 billion. ETFs now cover nearly every asset class and country, and the creation-and-redemption structure pioneered in 1993 is the template the industry runs on.