Interaction of SPY etf with futures?

In the discussion to this question JoshK mentioned that the SPY etf has special interactions with futures contracts. I am curious what this interaction might be in particular?

Answer

in a previous question you were looking at using the VWAP price of SPY as a possible technical indicator or input variable in your investment decision process.

The difficulty that you are going to encounter is that SPY and the S&P 500 future (right now ESU9) are interchangeable. Here is a chart from Bloomberg showing SPY vs ESU9 from Bloomberg.

Now you can see that they trade in lock-step. There is a constant difference between the two of them - that's called the basis. The basis exists because of some technical factors that you can read about in a thousand other places.

Now there is a little friction when exchanging between futures and SPY's, but it's pretty simple overall.

This past Friday, for example, \$233b worth of ESU9 futures traded. Only \$18b of SPY traded in the same period. To make it even a little more complicated, SPY ETFs will trade some volume in the auction. Often the auction is just a few equity financing people exchanging shares with each-other. That really means little to anyone.

So I guess the point that futures dwarf SPY moves from a volume perspective.

You can have a whole other discussion about the importance of the underlying stocks, but that's for another time.