The decision upheld the decision of a lower court, which ruled that the Vanguard Group was not entitled to use any S&P indices in connection with its issuance of VIPERS (Vanguard Index Participation Equity Receipts), or any other investment vehicle.
For its part, Vanguard had argued that the proposed VIPERS shares were simply another class of mutual shares and were covered under an existing licensing agreement. The proposed VIPERS shares were designed as ETFs.
However, the Court accepted McGraw-Hill’s (parent firm of Standard & Poor’s) position that VIPERS shares represent a fundamentally different type of investment product than conventional mutual fund shares.
According to McGraw-Hill, the license with Vanguard was entered into in the 1980’s, well before the concept of ETFs had been conceived, and gave Vanguard rights only to offer conventional shares of its S&P index-based funds.
Like stocks, ETFs usually must be bought and sold through a broker, and are different from traditional mutual funds in a number of ways, including the ability to:
- trade shares intra-day, as with stocks
- engage in transactions on margin and to sell short.