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Dave Nadig
3:26
From a risk/volatility perspective, you should expect that to seem pretty "stock like" -- diversified compared to owning just ONE canadian small cap grower, but hardly as diversified as a total market fund.
conversely, VT, vanguards total market fund, is in every way a giant diversified mutual fund.  You just happen to trade it like a stock to get in or out.
L. DiCaprio
3:27
Does it matter how much inventory the market maker has when quoting a low-volume ETF?
Dave Nadig
3:27
I suspect this is not your real name (grin) --
The answer is "it can."  So imagine you're trying to trade XYZ, and it trades a few thousand shares a day, on average.
3:28
And you can only trade with, say, Cantor.
So if Cantor has NO position at all (long OR short) then they are going to set a spread that makes them feel comfortable they'll be able to make a profit between the time they take an order, and the time they'll see the opposite side of that order.
In other words, probably pretty wide.
3:29
If, however, they're sitting on 10,000 shares that they bought off someone earlier in the day, well, you can expect them to be offering you those shares at a better price.
and in fact, they might offer you a better price to buy from them, but an even worse price if you wanted to sell them MORE.
3:30
so they might only be competitive on the side of the market they had a position (works short too).
So yeah, inventory can matter.
In general, in the modern market, nobody really wants to sit on "inventory" however.
Nobody wants to go home net long or net short anything if they can help it, so they will set their prices to try and go home "flat" if they can.
3:31
(the nuance here, of course, is that for LARGE orders, regardless of on screen volume, they can access the underlying markets and do a creation or redemption, and all of the sudden prices can come back in!)
3:32
That's why we sometimes talk about the "smile" of ETF liquidity.  ETFs can be very liquid for very small lots (100 shares) and very large lots (100,000 shares) but sometimes more tricky in the toothy part of the smile (20,000 shares)
Teresa Medvic
3:32
Hello Dave. Is there a standard amount of time it takes for your filed ETF to be approved, or does it depend, say, on the "complexity" of the filing?
Dave Nadig
3:32
Hi Teresa, I'm going to combine this with this next question for my last one:
Anonymous
3:32
So:  The SEC is apparently considering new ETF rules next week?  Should we be concerned?
Dave Nadig
3:33
So, the huge answer is of course "it depends" and yes, on the complexity.
It can be fairly quick and cheap (a few months, under 100k) if its super simple, or if you're leveraging existing filings/umbrellas.
3:34
It can be literally forever, and infinitely expensive, if you're trying to do something nobody's ever done before (the case right now, with, say, non-transparent active).
BUT, on the 28th, the SEC is taking up the idea of an "ETF Rule" again, for the first time since 2008.
We don't know EXACTLY what's on the table in that meeting (I'll be tuned in with popcorn, they livestream them).
3:35
But we know what they floated in 2008.
And really, it's about making the process for plain vanilla, fully transparent ETFs as simple as possible.
3:36
this could radically cut the time to launch (and either a little or a lot of money, depending on how it all works out).
It may also address a few issues like "custom baskets."
(prior to 2012, folks who filed generally had broad latitude to muck around with what securities are in a creation unit, or a redemption, after 2012, anyone who's filed generally has to go with a pro rata slice of the actual portfolio).
3:37
There are some other nits and lice to be cleaned up as well.
Given that we've been down this road more than a few times, I'm not super confident that this time it happens.
3:38
But that said, it will be great if it does -- if nothing else, it will free up the SEC to focus it's actual staff time on more interesting/complex issues, like Bitcoin, or non-transparent active, or how to think about leverage/derivatives.
OK folks, that's going to wrap it today.  Thanks for all the great questions, and lets do this again next thursday, same URL, same time!
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