Paul Weisbruch, GTS

Really. These were just fairly straightforward market index beta funds that had traders interest, the interest of hedge funds, and certain managers were using them. But I think this was well pre-ETF model, ETF strategist, ETF fund to funds. None of that was really populated and not too many firms were doing it at the time. So fast forward the clock a bit, I then spent some time in an ETF issuer, Pacer, in 2008-2009 timeframe. And obviously, their actions speak for themselves in terms of, I believe they have $25 billion in assets at this point in time, a decade later, and a broad lineup of funds. So I saw the merits of being a startup, the challenges of being a startup in the ETF space on the issuer side, but have a good awareness of the distribution network and needs that advisors

Have and institutions have and what they really look for when screening and adding ETFs in their investment portfolios. So I joined GTS in 2019, post the acquisition of the market making group and lead market making commitments from Cantor Fitzgerald. And, proud to be a member of Reggie's team, who has been in this space longer than I. I would say, since the late 90s, the team here has broad expertise in market making, both on floor-based trading, as well as upstairs electronic trading. And currently, we oversee 341 US-listed ETFs as lead market maker, add another 40 as secondary market maker, and we trade across the spectrum well over 3,200 of the US-listed ETPs.

So we have, very broad asset class expertise and ability.

Picked up, well after high school and college.

On the respective exchange that they choose. And that means that we're required to post reasonable bid offer quotes during all market hours every day of the week. So nine 30 to four o'clock, we have the responsibility to be posting continuous quotes, i.e. we can't, take a break and there's, there shouldn't be any gaps in time where we're not quoting or any gaps in time where we're wide compared to where NAV is. So, uh, barring, system outages or, or streetwide market data issues. You'll see our quotes bid ask, uh, for 340 some odd names right now. And, uh, I ideally hugging the NAV trying to provide liquidity for orders that come in electronically, as well as from upstairs sources, such as, uh, broker dealer desks or custodian desks when they're transacting an ETF

Blocks for models for advisors.

So I think that we have fairly broad expertise and that's from just being in the game for so long is speaking with different clients and what their specific needs are and are, are oftentimes in a, in a consult consultative role in terms of examining a portfolio's liquidity, examining which ETFs they currently own or seek to buy and finding if there are anything, um, any esoteric details that we should bring to their awareness in terms of product nuances or product pricing or differences from fund to fund. I think it's a combination of just being in the trading space, the market making space, as well as many of us on this team have, uh, ETF wholesaling backgrounds. And once you can break down the barriers, what, uh, the various brokerage firms look for in terms of what makes ETF successful and

Added to said platform, you can connect the, the, uh, points of distribution to actionable trading liquidity. Um, and obviously volume and assets tend to drive the success of, of ETFs more so than

Sophistication of these, uh, products and strategies to market because some of the products that are launching are not, they're, they're first in class, brand new concepts, if you will, to ETF world, uh, ether products, for example, this week, I saw an aluminum strategy from U S commodity funds launching this week, as well as the bevy of active managers that simply have, they have high asset, uh, totals in their existing strategy. And the fund has a following, it has a retail investor base that will trade it. All of that needs to be supported by better technology, uh, technology that will continue to advance, uh, day over day, week over week, quarter over quarter. I think one example is the, uh, that you mentioned, you alluded to this, the, the night New York stock exchange DMM,

Uh, model, which a fun company can now launch on the New York stock exchange, as opposed to the electronic ARCA. And there, there are certainly merits to that. Uh, you have a human overlay, if you will, on top of, uh, an auto quota or an algorithmic based quota. And generally there's more market depth, tighter spreads, the optics of the fund tend to be very positive, especially for newcomers that are looking at a new fund. And typically, the advisors have the same questions. They usually look at spread volume, and then the newness of the fund. Is it a month old, or does it have a five-year Morningstar record? If the optics of the fund going into a trade are positive, i.e. tight spread in some level of activity and some level of market depth,

Chances of said advisor making a sizable allocation are higher. So I think we can speed that process of launching a fund and then getting to success points, 50 million, a hundred million, a billion, and AUM visa V conversations about mechanics, uh, optics and real life scenarios or such as buying, 10 X, 20 X, the average daily volume of said product. Um, so I, I think that the, the human, uh, the human overlay, if you will, on top of what we're doing technologically in our quoting systems, whether that be on NYSE floor or ARCA Nasdaq or SIBO, because we were active on all, all of those venues, uh, is, is certainly important. Understanding that certain asset classes and certain products are, are unique from, from fund to fund is probably core to that. And each needs a special level of

Attention and special level of, uh, detail to be successful. So staying on, on this, uh, kind of like

Required, even though the, the water flow may be going against the specialist book, they have to provide liquidity. And it's, it's not an issue of, is the specialist losing money or making money to the trading? And oftentimes the only real bid and liquidity around is the floor specialist trying to maintain that orderly market. So in times of market stress, where there's one way selling or one way buying for that example, uh, for, for, for example, purposes, specialist is the first stop in terms of quoting and keeping orders that are coming into the marketplace, trading at reasonable levels, uh, and also matching buyers and sellers where necessary. They have it, they have an acute awareness of which firms may be active and at certain price limit levels. And in certain cases

May be able to match buyer seller, uh, as well as take down positions for, uh, for the sake of stability and liquidity within our own book. So let's pivot to like kind of launching an ETF. And from your

Scramble or no loss business for no good reason other than, uh, RIA tried to place order in new ticker, but it was rejected because it wasn't asked to add into the master database at firm level. That does happen. And it's unfortunate because I feel like the average ETF issuer probably doesn't know what's happening. And it sometimes becomes a sheer function of numbers. There's just dozens of new launches three 30, 200 and more to come ETFs. And the workflow just can't be, it can't be managed day to day without some human, um, awareness and interaction. So I think one of the most important things to do is just make sure that your, your points of distribution, where you plan on selling the fund, uh, that those,

Those, um, gateways are open. And sometimes it's simply just, uh, adding a symbol and adding a QSIP to some master database and having, having it in there. Um, I think a second point would be simply, um, having a capital markets team internally, um, if not outsourcing that, uh, to a trading sub advisor is, is an important role. It's worth the investment. It leads to successful launches, but not just launches themselves, but day to day, week to week efficiency. Uh, so having a team internally or one that you hire, and there's obviously several third parties that are very competent at this, they can watch for anomalous volume in the ETF. If spreads, which tend to be pretty consistent ever move, uh, away, they can quickly, uh, ping the lead market maker, uh, and just ask a quick question or find out if

There's a basket anomaly or perhaps some names in the basket have news or are halted or something like that. At least get to the bottom of it quickly and figure out why is the spread outside of normal parameters. If that's, if that's handled within seconds, as opposed to hours or days by said ETF issuer, you're simply just running a, you're running a better product. You're running a more efficient product. You'll have less advisor questions and inquiries and just a tighter process overall. And I think all that just leads to better sales. It simply just leads to a mature result with, we have tight spreads. We have acute awareness of our products, how they trade minutes to minute day to day. And it becomes, it could become cumbersome to add funds over time, especially

If they're different asset classes and they have different trading characteristics. If you don't have like an internal way of monitoring it all. So growth is obviously a good thing. Scale is a good thing. Adding new funds all the time is a good thing. At some point that day to day labor may outstrip your current, backbone of support. So we, we, we definitely see those that are successful. Like I said, either investing in their own capital markets team or, or subbing it out. But I think the notion of, well, we have, advisor interest in new ETFs and we have assets. We think these will be successful if we distribute them. That's, that's all great. But I think there has to be a plan before day one of, if any of the above take place, how do we support

Growth? How do we support incoming calls? How do we support market maker questions? How do we support anomalous trading? do we have a plan? All those, if, if all of those boxes are checked, I think you're on the path to success.

All those boxes checked on day one is, is extremely important. I like the term that you use there,

To track, where volume is coming from, right? it's kind of a, if, if it's model based action and you understand that your funds are being added or subtracted to models, there's some awareness of that and some way to track it. But even that is done quietly and without footprints in most cases, and it's usually an after the fact observation. And then the thing comes down to, your shareholders, which could be institutions, retail advisors, could be retail investors, self-directed. They're not necessarily emailing the sponsor and calling the sponsor and saying, Hey, tomorrow I'm going to allocate $5 million to XYZ. So get ready and, um, make sure that our orders are executed correctly. I would say a small percentage actually give the

Heads up to the ETF sponsor or the trading firm, a market maker that's involved in the fund. The more that do, they, they, they get a great outcome because all eyes and all attention is on to what they wish to do. Um, but mystery volume, as I call it, it's, it's hard to address when you don't know where it's coming from. And oftentimes it catches people flat footed. So we're all, I would say all of the time we're trying to model better and prepare ourselves better for, uh, scenarios where average daily volume in a certain fund that's usually quite inactive will jump considerably. And then trying to track where that's coming from, usually it's model driven.

Space, but there's hundreds of funds from various providers, Innovator, First Trust, Pacer, um, TrueMark come to mind in terms of, uh, Allianz all have the fine buffer outcome products. BlackRock has them now too. So there's new entrants, there's existing players that have been around for five years now, uh, in the space and the assets are exploding. And I think why? Because the retail base, uh, of advisors and institutions that use these have confidence. Now the products are, are traded and structured and they, they, they suit a need. They suit a need within portfolios. So I think you'll continue to see options based or options overlay ETFs, uh, whether they're defined outcome buffers or something like JPI, JEPI from JP Morgan. There's no shortage of funds in that space

Now too, all within the last two or three years. So it's gone from like a, a fund category of relative obscurity to something that has billions in assets and growing as well as new filings. Um, single stock ETFs, long, short with leverage continue to be, I wouldn't say hit or miss necessarily, but there's some that are immediately successful given good timing and the popularity of the single stock, NVIDIA, Tesla come to mind. And then there's other stock, uh, single stock ETFs, which are quite small, but the providers, I believe think that the, the, the single stock name will be in play at some point in the future. So they want shelf space there. Um, again, no shortage of new funds coming to market in that category, literally, um, dozens, dozens, if not in the pipeline that have launched

So that, that comfort level needs to be established quickly and it needs to lead to action quickly. Uh, second of all, everyone has some level of, pre launch marketing, which is obviously within compliance, uh, of their new ETF strategy and advisors will either be committed or we'll wait and see if it's wait and see, and they want to wait until said ETF has a hundred million assets as a million shares a day on average daily volume, that becomes a bit of a dice roll for the issuer in terms of they're waiting for someone else to buy first. And it is a chicken in the egg scenario, which could lead to, um, managing a fund with low assets month over month, quarter over quarter, waiting for others to appear and buy it. And you have, uh, basically a bunch of,

Uh, retail advisors that are waiting for activity to happen outside of them before they get comfortable. Um, so I think, yeah, that that's my, my answer would be establishing a level of confidence on how quickly you can get the 50 million because it's important to get to that scale and pay fixed costs that are, they're, they're essential to running the fund officially. And once, once you get to those levels, 50 million, a hundred million, you can then call the retail platforms more confidence and a higher success rate and get them to agree to allow the ETF to be distributed on said platform. And, uh, there's, there's no shortage of model driven and ETF driven advisors out there.

It sometimes becomes an issue of there's 3000 plus ETFs and they have limited bandwidth. So they need some help from a home office level, the screen, if you will, or filter what they can buy and what they can't. So getting to the, getting to the point of success is quickly getting onto those platforms, not three to five years from now, but ideally inside of a year.

Involved in running an ETF. I think that the better strategy in that scenario where you're simply just selling something that's out of favor hasn't been embraced yet. And that, and that's a common problem, especially with all the new ETFs out there is to just look at what your best peers or competitors are doing assess what's the collective AUM in my peer group. is it $10 billion or is it relatively small because this is a new segment like the music segment? And is it several million dollars? What are my competitors doing? Perhaps what I'm not, that I'm not doing, what platforms are they calling on? What kind of marketing are they doing? Which conferences are they doing? How, what's their message look like relative to ours? Has anything changed, in the last six

Months to a year and the way they approach things, have they had net inflows or outflows? I think that you can control to some extent, the flows that having your own fun lineup, but it's, but it's ultra, ultra important to just look at your, who you think your closest peers are. And there may not be an Apple to Apple's comparison in many cases, but that is probably the best source of Intel because eventually you can figure out how they're being successful, or perhaps you might identify a misstep they've had and capitalize on that. So I think just having an awareness of who you're selling against specifically, is it an, is it in each segment? Like I said, the music industry, or are we competing in like an absolute return category or something that's well populated,

Like dividend growth equity, where there's no shortage of offerings there and to stand out, it takes a lot, obviously. So I think you can kind of do that, day to day, week to week, quarter to quarter, and just examine net flows in your category and vis-a-vis your peers and make some kind of assessment on what may be working or what's not working.