Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

Exchange-traded products (ETPs) are designed primarily to track the performance of an underlying index, commodity, or a basket of assets. The first characteristic highlights that the value of ETPs is derived from other investment instruments, which is a fundamental aspect of how they operate. ETPs trade on national securities exchanges, similar to stocks, providing investors with the ability to buy and sell throughout the trading day at market prices. This liquidity and real-time pricing are critical features that define ETPs.

The other characteristics mentioned pertain to nuances that do not accurately reflect the typical features of ETPs. For instance, while ETPs can usually be sold short, the specific rule about margin eligibility and short selling isn't universally applicable and varies by the type of ETP. The notion of a formula-based value in the prospectus is more closely aligned with structured products, rather than the more straightforward investment structure of ETPs. Lastly, ETPs are generally available to retail customers, broadening the accessibility of investment in various asset classes, contrasting with the incorrect statement suggesting they are ineligible. The core function of ETPs remains their derivation of value from other financial instruments, making the first characteristic the most accurate representation.