Resources to empower your ETF business

ETFs and mutual funds share regulatory similarities, but ETFs offer intra-day trading, typically lower operational costs, and tax efficiency through in-kind redemptions. Launching an ETF requires specialized knowledge of market-making, authorized participants, and the creation/redemption process, which differs significantly from SMA or mutual fund management.

Typical ETF filings involve SEC registration under the Investment Company Act of 1940, compliance with the SEC’s ETF Rule (6c-11), and detailed disclosures about creation/redemption processes.

Some strategies may involve SEC registration under the Securities Act of 1933, which comes with a variety of different rules and requirements relative to the typical '40 Act Structure.

Operationally, ETFs also require compliance with exchange listing standards and coordination with authorized participants and market makers to ensure liquidity and pricing efficiency.

Deciding to launch an ETF depends in part on your target market and the scalability of your strategy. Factors include assessing whether your strategy is index-based or active, how well it aligns with the liquidity needs of the ETF structure, and your ability to market your strategy in a competitive ETF landscape.

Beyond upfront costs like regulatory filings and legal fees, you’ll need to account for ongoing costs such as exchange listing fees, custodial fees, and marketing expenses. Operational efficiency can reduce costs, and partnering with an experienced team helps avoid hidden expenses and potential delays in the launch process.

ETFs use the in-kind redemption process, where securities are exchanged for ETF shares, avoiding taxable events at the fund level. Strategies like managing portfolio turnover, optimizing creation/redemption baskets, and leveraging portfolio manager expertise ensure maximum tax efficiency.

Active ETFs offer flexibility in portfolio management but require careful planning to address transparency, liquidity, and compliance concerns. Semi-transparent structures may be appropriate for strategies where holdings disclosure timing is sensitive. Successfully launching an active ETF depends on strong operational systems and a clear value proposition to investors.

APs facilitate the creation and redemption of ETF shares, while market makers provide liquidity by trading ETF shares in the secondary market. Partnering with experienced APs and market makers is crucial to maintaining tight spreads and ensuring your ETF’s liquidity aligns with investor expectations.

ETF distribution success relies on educating wealth managers, RIAs, institutional investors, and even individuals about your fund’s unique value proposition. A comprehensive marketing plan, strong partnerships with broker-dealers, and participation in ETF model portfolios can help build traction and differentiate your offering. A strong narrative around an ETF’s unique value proposition can help you leverage digital marketing and media visibility and collaborate with distribution partners to reach target investors.

Some key metrics include assets under management (AUM), daily trading volume, and the spread-to-NAV. Monitoring investor behavior, marketing performance, and competitor analysis can inform adjustments to your marketing and operational strategies.

Ongoing compliance involves monitoring rule changes, updating disclosures, and maintaining transparent operations. Regularly coordinating with your legal counsel, custodian, and compliance officer ensures that your ETF meets evolving regulatory and listing standards.

While the U.S. market operates under SEC regulations, adapting to international jurisdictions involves additional considerations, such as local disclosure requirements and tax implications.

ETFs provide a liquid and accessible way to invest in specialized markets. However, they require precise structuring to manage risks like volatility and regulatory compliance. In addition, Sponsors must stay aware of the pending and sometimes rapid regulatory developments that can impact how these specialized ETFs operate.