In this episode, Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange, is joined by Chris Hempstead, Managing Director, Head of ETF and Global Portfolio Trading at Mirae, to discuss the launch of Mirae’s US ETF Portfolio Trading and Authorized Participant business.

Douglas and Chris discuss:
· Developing a long-term career on the sell side of the ETF marketplace
· What it takes to launch a new AP and Global Trading desk for the US industry
· A look into the future growth of ETFs, and how to best build the infrastructure necessary for success

ETF Central’s THE PODCAST:

TRANSCRIPT:

Douglas Yones:

Hello, and welcome to ETF Central's The Podcast, where we bring the latest and greatest ETF industry perspectives directly to you through in-depth conversations with key thought leaders from across the ETF ecosystem. I'm your host Douglas Yones, the Head of Exchange Traded Products at the New York Stock Exchange, the Home of ETFs.

Now today, I'm joined by none other than Chris Hempstead. He is a Managing Director and Head of ETF and Global Portfolio Trading at Mirae. He supports trading desks, asset managers, and ETF issuers as they navigate the ETF landscape. He's also established Mirae as an ETF authorized participant in AP. We'll get into some of that, for some of the largest ETF trusts out there.

Chris has established global portfolio trading to support ETF managers and the general needs of other trading clients. Boy, he assists a lot of people in this industry as well as managers in executing portfolio rebalancing for traditional ETFs, non-transparent ETFs. He also works with a lot of issuers on ETF listing, secondary market trading support.

If you've been in this industry at any period of time, a goal for you if you haven't already achieved it, is a giant bear hug from Chris in-person. Chris, I just want to start out by saying thank you so much for being here and sharing your time with us.

Chris Hempstead:

Hey, Doug. Yeah, I appreciate it. I'm flattered to be a part of your podcast, so thanks.

Douglas Yones:

Yeah, and at the top of my bear hug list, Chris, start out. Tell us a little bit about you, your team. How is it you're spending most of your time day-to-day?

Chris Hempstead:

Yeah, it's a good question. Look, when we started building this out at Mirae Asset Securities, so maybe it will help if I give you a little bit of a backdrop on who we are and then that might make more sense as to why we are and what we do. So, Mirae Asset Securities USA is the New York broker-dealer arm of a global broker-dealer known as Mirae Asset Securities, which is the broker-dealer arm of a global parent, Mirae Asset Global.

Mirae Asset has two general arms of the business, the securities division, which Mirae Asset Securities USA sits within. Then the asset management division, which owns properties, owns asset managers, owns ETF managers such as Global X or Tiger over in Asia. So, there's a broad scope of business across the entire universe of Mirae, generally separated by asset management and securities.

When we set out to design and build a business here in the US to support ETFs, we had to decide which flavor of support are we providing and what we generally provide, and where we're most comfortable providing it is access to our balance sheet and capital. We'll get into how that works sometime, and access to our execution and trading capabilities globally.

We'll get to how that works, and rebalancing. In some cases, what we're about to embark upon is lead market making, which is a little bit bespoke, and it's important to differentiate lead market making in less liquid products versus market making in very liquid products, meaning in terms of volume. So, when I had to hire a team and build a team, it was less about bringing in quant developers and risk-takers, people who generally want to be hitting as much volume as possible and taking risk.

It was more about finding a high touch level of service, people who are familiar and comfortable talking with portfolio managers and traders to help them achieve otherwise difficult tasks of trading their portfolios that are within the ETFs. So that's a big part of our business. As such, I've assembled a team of traders and operational support that are embedded in our business.

They're invested in our business. They're teammates. We are a team. I think of it like a sports thing all the time, Doug. I'm just like, "Look, every day is a game for us. Every day is a match." It's important. We all just got to hit on our skillsets and do the best we can and challenge each other when we're falling back and you know what I mean? There's so much passion in what we do, and tempers fly and at times when it gets really busy and everyone's doing different things, it's awesome.

We always turn back, we're like, "Wow." You take a deep breath and you're like, "What a day. That was really fun." Even though at times it can be a little bit stressful at times, depending on how many balls you have in the air, but the folks I work with are fantastic. I'll tell you another thing about Mirae Asset Securities US is we have immense capabilities in terms of trading and balance sheet usage. We have a securities lending desk, we have a repo desk, we have a big agency team, prime brokerage, and there's all these things that the firm can do, and we're small relative to the size of other firms that do these things.

We're less than 100 people in the US, and we have a huge operational support team that backs us up. Again, periodically I just come up for air and I have to remind people, I'm like, "You got to understand, we couldn't do this without you." So it's important to recognize that behind the scenes, the people who aren't on the podcast, the people who aren't in front of the clients or who don't get to go to the conferences, they're the ones that make it all possible, really.

I mean, what we see as managers, what we see as traders on the desk, we're out there trying to get order flow to bring revenue in, but we can't do it without all of the engine work being done in the back. We need everything to be firing on all cylinders and be well-oiled because the client experience, the portfolio managers, the traders, when they come into us, they want it to be easy.

They want to be able to send us stuff and look back and then do something even more challenging and know that they have it. Chris and his team have it, I'm in good shape and I don't have to worry about it. If that's not the experience they're having with us, then we've got to regear some things in the back. Anyway, a long way of saying we set out to hire and fill our seats with people who have that mindset, and that's what we've done.

Douglas Yones:

I want to ask you a question that you put in my mind, which was when you said, "Boy, that was a day." I think in the exchange world and in trading world, sometimes those super volatile and crazy days are also some of the funnest when you look back at them. But there's always been this attempt through all of our career, and there's one right now very recently where this idea of 24-hour trading, do you think that that ever happens and takes off? If it does, does it take away that ability to have the open and the close and be able to cut off the chaos during a certain time?

Chris Hempstead:

Yeah. Yes and no. Well, let me share with you a little bit about what we do. It's interesting that we're here and we do this, because I've known these guys for quite some time and I've consulted with them and worked with them on the design of what's known as Blue Ocean. Blue Ocean allows for... It's an ATS that trades US listed securities between 8:00 PM and 4:00 AM, which is generally historically the time of day when no US listed securities could trade.

That's when the fixed session is down globally. So they've got this session that's open from 8:00 PM to 4:00 AM Asia daylight hours, if you want to call it. We are very active on this platform as a firm. Now, it's mostly retail. We're not a market maker on the platform. We're a taker, but we're involved. With respect to extending the US market hours from 4:00 AM to 8:00 PM, while we may be active in certain retail names and occasionally in institutional capacities, the good news I think for people in our industry, people in portfolio management and trading roles, most of the managers that we face, most of the ETF assets and equities are benchmarked to an index.

Most of those indexes benchmarked to a primary market close, which is either the official close in Europe or the official close in the US. As such, there really isn't as much demand for trading and liquidity after the close. So even if people got more comfortable trading between 4:00 PM and 8:00 PM, and then later 8:00 PM to 4:00 AM, I don't think there's a lot of business to do there. I think there's some opportunistic stuff but not-

Douglas Yones:

Got it. So Chris, start a little bit back in time for me. Take us from the beginning. I mean, you're a well-known industry veteran throughout ETFs, but you haven't always done what you're doing right now. When you were coming out of school, were you like, "Hey, I want to be in ETFs?"

Chris Hempstead:

No, not ETFs, but similar. So, it's funny. It really all started, my father was a lawyer. My father worked for a British conglomerate and they were involved in all sorts of takeovers throughout the 1980s. Curious kid, I'd be like, "Dad, what are you guys doing?" He would tell me, he's like, "Look, this is what we do. We have a huge wallet and we go out and buy companies and it gets a little crazy sometimes. They do hostile takeovers."

I'm like, "What's a hostile takeover?" He would explain to me what it is. Of course, he would never tell me anything until it was in the news. He's like, "Here's what we did. Here's the article, and you can read about it." I'm like, "Oh, wow. So you bought this company for $50 a share, but before you bought it, it was $25 a share."

So people, when you announce these deals, the stock price goes up. I was just fascinated with the process. Now in the 80s, remember Doug, I was looking at the Wall Street Journal print prices, and I think in my head I'm like, "This is so easy. You just buy it at this price and then it's going to get taken over at that price." My father was like, "Well, no, that's not really how it works. There's a specialist on the New York Stock Exchange and the specialist does this."

I was fascinated with it. I was lucky enough to get an internship with a company called Spear, Leeds & Kellogg, which was very small, privately held specialist market making firm on the New York Stock Exchange and others. I got an internship when I was in college, and that was it. I mean, I knew within five minutes. I'm like, "This is where I want to be."

It was everything you can imagine. The movies may have showcased a Wall Street of yesterday. Every stereotype you could think of existed, but it was so exciting. It was such a fast-paced, loud environment, and I loved it. I realized also very quickly, you don't need to be the smartest person in school to do well at this job. You don't need to have straight A's. You don't need to have some special permissioning thing.

What you need is thick skin and a willingness to learn. For me as a C student my whole life, that was perfect. I got that. I can do this. I fell in love with the market making aspect of the New York Stock Exchange specialist system. I got a job out of college with Spear, Leeds & Kellogg, started out as a low level clerk and worked my way up to a high level clerk, and then got moved from the New York Stock Exchange to the American Stock Exchange.

Some people say is like a demotion, but it really was a favor to the firm because they had some really active securities on the American Stock Exchange, but they needed some clerical talent to go over there and take it over. Nobody wanted to do it because at the time, everyone was like, "Don't leave the New York Stock Exchange. This is the place to be." But senior people in the business were like, "If you can figure out if you can learn on the AMEX, you'll be 10 times better when you come back to New York." So I was like, "All right, I'm young enough."

Douglas Yones:

I want to cut you off for a second, Chris, because those are really important points, especially for younger people. So here you are, I want to dig in on two points. One is, you said work your way up. What does it take to work your way up? Two, after that, tell us a bit more about that decision. Because like you're saying, some people may have seen it as a demotion, but the leaders of the company were saying, "Hey, we need something special here, and we're asking you to do it."

Chris Hempstead:

Yeah. I mean, I think it's a measure. It's a measure of working your way up first and foremost. I will tell my new employees, we just hired a kid or anyone really, any of our interns is ask questions. There are no bad questions. You may think it's a bad question, you may be hesitant to ask it, but please ask it.

If we laugh and if we make a face and we look at each other and you feel like, "Oh, they're making fun of me," we're not. All you're doing is reminding us of a time where we didn't know the answer to that question either. Something that comes very natural to us now because we've been doing it for 10 or 20 years, there's going to be questions that you ask that we giggle at because we were once in your shoes.

So you have to ask these questions. You have to be willing to learn. If you're not asking questions, I generally tell new employees or interns or people interested in the business, "I'm just going to take that as either you think you know everything or you're not interested in learning." So, it's important to ask the questions and then to follow on, if I were giving advice to someone who is young and new in the industry, in addition to trying to learn and understand and be courageous enough to ask questions is put the time in, don't expect that everything's going to be handed to you. You don't have to come up with the next best solution.

You don't have to take risk, but put the time in to really truly understand the A to B nature of flows and the process of whatever it is your company is doing, really try to make it meaningful to you. Everyone has different synopsis going on in their head, and so you need to figure out how this business makes sense to you so that you can be better at it.

Douglas Yones:

Chris, you've made some pretty big jumps. From an outsider's point of view, there's been points in time where a lot of people would say, "Wow, he's top of his career, he's at this spot," and then all of a sudden, I've watched you leave that spot to go take on a new thing, even this current role, to go build a desk is. What's the driver there? What has you wake up in the morning and say, "You know what, I want to try something totally new?"

Chris Hempstead:

I don't know. With the exception of one move that I made, most of the time, it wasn't really me looking to try something new. It was someone saying, "We want you to take a stab at this." So I was fortunate enough to get invited to try new things by other firms. Ironically enough, the timing was always just right. It usually, Doug, involved the availability of balance sheet.

A lot of the business that I've been invested in after my onscreen floor-based or just off floor-based market making career, which was the first half of my career, it was very non-client facing. It's very electronic, and you're not out in the public eye. When I moved to the sell side, balance sheet's a huge part of that. So if balance sheet dries up or balance sheet becomes unavailable, it's very difficult to do a great job at what you want to do a great job at.

So at a few points, I was pulled away from a role to build and expand on someone else's desk that either had more balance sheet or wanted to use their balance sheet. Then what happened? I think the worst part of all of that was when I went to a big large global bank for the first time, and then a couple of years into that, wouldn't say it was a build out. It was more of a cleanup, untangle things, rebuild, reset, expand the client roster, the global bank shut down the entire equities division.

That left me back on my foot. I'm like, "What do I want to do next?" I had never worked for an asset manager. I had never worked for an issuer. I had spent the better part of 10 years supporting issuers and asset managers, but I had never directly worked for one. I thought, "That might be an interesting job to try." So I went in and I gave it a shot at wholesaling. Doug, I wasn't good at it. I liked it. I was passionate about talking about ETS and trying to position products, but I wasn't think I was successful in the role.

I don't think I was succeeding at what I was hoping to achieve. I was fortunate enough to learn the hard way that that's not where my strength is. My strength was not there. I was also very lucky that as that realization was meddling around in my head, and it was all during COVID, by the way. So it was an interesting time to be sitting in that role where I was like, "What am I doing? I feel like I'm not working to my capabilities."

Towards the end of COVID, the phone rang and here's this global securities dealer that has all the ingredients I need to build a desk looking to do it. They're like, "We want you to do it." Basically I was super lucky to walk into a firm with immense resources, and by the way, a blank slate. No one had ever built it before me. So I was able to plug and design as scripted. I got to say, super lucky there, Doug. I didn't-

Douglas Yones:

I know you say lucky, but maybe I'll point to a different thing, which is everyone on the outside, all of us who know you, you have a massive network. We think about you as someone who cares a lot. You have a smile on your face each and every day. There's no bad days, at least what we see for Chris Hempstead, and those are the people that others look for. So, let's talk about that. So you step into this place, you're building a whole new platform. How does Mirae fit into this giant ETF ecosystem? What does it mean for someone to be an authorized participant?

Chris Hempstead:

Yeah, so one of the first questions I had when we were talking to each other informally was, who do you clear through? They said, "Well, we're self-clearing. We're a DTC member." I was like, "Oh, wow." I said, "Well, that's actually pretty interesting." I said, "Well, what's your balance sheet look like?"

They're like, "Well, here's the balance sheet." I'm like, "Well, that's interesting too." I said, "Can you trade globally?" They're like, "Yeah, we can trade globally. Our prime broker clients trade globally. We don't do a lot of it, but we could." I mean, real quickly, I'm like, "Look, you have the ingredients to be a meaningful participant in the ETF industry as an AP. Because as an AP and a self-clearing member, you can now create and redeem ETF shares to support the market making community, to support the client base community that may want nav trades or transition trades and things along those lines. If you ever decide to be a market maker, that would be infinitely valuable to have AP agreements in place."

So, there's a number of reasons why that's an important step in building the business. I said, "Look, there's over 200 ETF managers, and some of them trade themselves, some of them trade through sub-advisors. Either way, the ETF industry is growing significantly faster than the industry that supports it. Okay? So there's demand for desks who can do things like create, redeem, trade globally, use balance sheet for seed, use technology for market making. There's an ever-increasing amount of demand for those services.

So Mirae wanted to learn a little bit more about what that meant. We walked it through, we white-boarded everything, and they said, "Let's get to work." It wasn't long before we had 85 AP agreements executed covering more than 2,500 ETFs, and we just tested and plugged in all of our global routes to make sure that we had connectivity everywhere we needed it. Then we started calling on managers and saying, "Hey, look, we're here. We're built. We can support you if you want to do business."

Not everyone says yes, but enough people said yes, that here we are. Now, we have an active and robust desk. We're growing. We don't want to grow too fast, Doug. We are sensitive to our clients. We want to make sure we can provide them with the very best service all of the time. We don't want to bring in too much business where it sacrifices the business that we're handling the way we want to handle it. So we want to be a little bit scripted in how fast we grow our business, but we're really happy with the growth we're seeing, and we do see a roadmap for future expansion of our business, for sure.

Douglas Yones:

Are there differences on your side that you're seeing as being part of an international bank versus a domestic one?

Chris Hempstead:

A little bit. I don't know if it's so much that there's differences. I think it's more about global opportunity. As a firm, on the securities level, broker-dealer level. We have a presence just about everywhere in the world, all across EMEA and APAC and South America.

The connectivity to the different desks globally is established, but I think there's an opportunity for us to link up a little more formally with some of the desks now. We trade with our partners in Korea on a daily basis. We have connectivity to our partners in other areas of the world, but I think there's an opportunity for us to really expand upon that.

I will tell you, at the highest level, the firm loves ETFs. They do. They love every part of the ETF business. They trade ETFs in Europe and Asia. We have a sponsored market making business in the Europe ETF space. We have market making in Asia as well. We have asset managers in Europe and Asia and the US. Of course, the firm is invested and committed to ETFs globally is the best way to put it. They are and will continue to provide the resources to grow that business, and to say that at the highest level of the firm they're excited would be an understatement.

Douglas Yones:

So, let's talk a little bit about changes in the industry. I'd said it before this that I wanted to talk maybe about some of your predictions, but I actually want to hit you on another topic that came to mind, which you brought up that a lot of times the work you guys are doing behind the scenes aren't necessarily what's reported on in the industry. It's not what people are thinking about, but the reality is there's mismatch in settlement.

We have ETFs that are trading during US hours, we're trading on a US cycle, but the underlying holdings can oftentimes be traded at a completely different settlement cycle. Now the US markets are targeting next year, shortening our own settlement cycle, which then has impacts downstream for the underlying settlement cycles. Do you look at that mismatch? Is that something you're concerned about, working on? Thinking about? How do you look at all those different issues and are you fearful about next year and some of that change?

Chris Hempstead:

Okay, it's a fair question. It's a complicated answer. So first of all, the mismatch itself, if there's an ETF that has a T2 settlement cycle, but a lot of the securities in it are T1, what you're talking about there really is financing. So in other words, oh, if I have to deliver in T1 securities or if I have to settle securities on a T1 basis, I have to pay for them. If I'm not getting an ETF back until T2, there's settlement offsets.

So what you're really talking about is a cost of balance sheet when you're talking about settlement mismatches, because the risk is generally off the table because you've got a long, short vision of what's unsettled, but there is a balance sheet cost. Now, what's interesting about your question right now in June of 2023 is the cost of balance sheet for us and for everyone else in the market is infinitely higher than where it was three years ago, or two and a half years ago.

So the conversation about pricing an ETF on risk or creation or redemption or anything like that is more about how long is my settlement going to be mismatched? Because every day of mismatch is a carry and there's a cost associated with it. So that's the first answer to your question about settlement mismatches. As for next year, the US going to T1 standard settlement, well, it's also a complicated answer. Now for me to just accept and create and redeem ETFs on a T1 settlement versus T1 and ETF itself, no problem. We're good.

Again, anything mismatching, it's a financing thing, but one area of conversation that's been huddling around US ETF working groups, which includes the custody banks, the largest broker-dealers and banks in the world, the issuers, the DTCC is T0 trading. So in other words, a shortened settlement in a T1 standard cycle means T0, means same day.

There are some operational and technical conversations going around about how those trades will be processed on a day in and day out basis. The bad news, Doug, is I don't have the answer for you because it's an ongoing discussion and it does require a lot of thought on the part of the custodial banks, the fund administrators, the DTC, and here's what the good news is, Doug.

There's a large working group of industry professionals who are vested in this, who want to see the right outcome. So there's input from various industry groups, there's input from multiple industry participants, and I'm very confident we're going to find a solution that works for most everybody in an efficient manner, but to be determined on that.

Douglas Yones:

Yeah, fair enough. I mean, it's something that seems to be coming up more and more. How about broadly speaking, do you look at the ETF industry right now, are you pointing at places where you say, "Hey, this is where the future's heading and we need to be moving our business to take advantage of that?"

Chris Hempstead:

Well, I mean, I think there's the RFQ business. I think there's two major parts to the ETF business when it comes to trading in the secondary market. If you think about the 3,000 plus ETFs that are in the US market, all but about 1,000 them don't trade a whole lot.

They're lower volume, they trade by appointment in many cases. They don't have that natural average volume where retail is trading with retail or a client is trading with client. It's usually a professional market participant making a market on one or both sides of the market the majority of the time, in those products. The top 1,000 products, if you will, and I'm just picking a number, there's probably a more exact number to that, but the top 1,000 products, there's a really healthy amount of buyers and sellers all the time.

Market makers don't really need to intercept the market or provide liquidity in many cases. So, I think the market is going and continues to evolve as people learn about how to trade, how to use ETFs, more products become available, the market is continuing to evolve. So that top 1,000 list, I expect to be 1,500 in the future, but I expect the list of 3,000 plus ETFs to also go to 5,000 ETFs.

It's going to demand a lot more support from market makers on the products that don't trade. It's going to command a lot more support on distribution and seed and things along those lines. So mechanically, the trading and the sport that we offer and other firms like us offer probably isn't going to change all that much.

Those market participants that are wholesalers or big risk takers, and I don't mean risk, they're hoping to make, I'm talking about firms that provide liquidity in a big way because they run really large central risk books for them. Speed and latency and connectivity is a super important part of their overall business model. For the 2,000 or so ETFs that don't trade a whole lot, it's not as much of a prerequisite.

So I think as we move forward in this business, we will continue to see industry veterans and people who are new to the firm, new to the industry that understand it, offering their knowledge, offering their support to see other firms come and win. I mean, there's a lot of competition, but there's also a lot of co-opetition, I guess, in this industry where people are willing to help one another. People are willing to talk about their failures and successes.

Douglas Yones:

Let's stay on that topic a bit. So I've known you a very long time. I've watched you personally help a lot of different people, asset managers, firms enter the ETF industry, enter the ETF space at both an individual level and also at the firm level. Do you have like a list, I don't know, of best practices? Hey, here are the key tips to get in here and be successful?

Chris Hempstead:

I'll tell you, I don't know if it's so much a list, but I have been criticized over the years by peers and colleagues and have worked with, they're like, "You never say no. You pick up every call," that kind of thing. It's a curse and a blessing at the same time. But yeah, there are times, Doug, where I take the call and I spend an inordinate amount of time on something and it's going nowhere where it's just like, "Oh, this is probably not a great use of my time," but I owe them that. I mean, someone gave them my name and they probably did that because they trust that I'm going to be honest and I'm going to try and help them.

I like that because you know what it does, Doug? It ensures that I'll probably get a look on the next call, which might be a lot better. So a willingness to say yes, to take a little time out of your day, have conversations with people, get to know people, try to help. You learn really fast the people that appreciate that. Sometimes they can immediately repatriate that to you and say like, "Look, I want to figure out how I can do some business with you. You've been super helpful. What can we do together? I would love to make you a part of our business too." Then that is basically the establishment of a relationship, but if I never picked up that phone and if I never made that first effort to establish a relationship, it's going to be a lot harder for me to bring new business in, to establish new business lines.

Because we are a sell side firm, we are a client-facing firm, it's really important for us to put that time in. It's the, "I'll go first. I'll put my best foot forward. I'll consider seeding or leading an ETF before we've made a penny on the relationship." But it's important to take those chances. I think more times than not, it works out in your favor.

Some of the relationships, Doug, that I've established over the course of my sell side career are lifelong relationships. I mean, not only are they business relationships, but you get to know each other personally. You start to learn about them and their families, and it's so rewarding. Really what starts as a business relationship a lot of times turns into friendships.

I got to say, there's a pipeline of opportunity in front of you and me, because I know you're the same way, Doug. I know when people call into the New York Stock Exchange and ARCA and say, "Help us think about launching an ETF," that you put yourself and your team right up on there, and you never judge anyone before you've already had a conversation. It's always, "Let's talk first. Let's learn a little bit about you." Because the worst thing I think someone could do is dismiss or cross someone off the list because they don't know anything about them, you know what I mean? Before they've had a conversation. A lot of times, you'd be surprised.

Douglas Yones:

Yeah, I've been surprised more often than not, and learned very early on in this industry that one, most people in the world, ETFs, like you said, I forget the word you used, collaborate, cooperate?

Chris Hempstead:

Co-opetition.

Douglas Yones:

Co-opetition. It's reality here. People want to see each other and help each other, and it is a friendly industry. We work in this perfect mix of really smart, educated people who thrive and want to see the pie grow and help each other grow. My team gives me a hard time sometimes, but I love every single call. I don't know if it's because I'm lonely here in my office or what, but I love to talk to everyone.

I find the energy level around this industry so impressive, and it drives my energy. People who find their way here, I invite them all in because we're happy to have a conversation. Look, nine times out of 10, it's not an ETF or it might not be an ETF today, this year, next year, but it could be three years from now. I can't tell you how many very successful people who have launched ETFs in 2022, and now in 2023, we started having that conversation with them in 2017, 2018, 2016.

So the cycle can be five, six years. But I love those calls saying, "Hey, remember me from five years ago? We listened to every suggested item that you did, and we gave ourselves five years to build ourselves up and get our distribution plan together and get our sales plan together, and put ourselves in an economically viable place before launching. Now we're ready." Guess what?

Then they go live and they are ready and they're successful and we love it. Yeah, you're right. I invite everyone out there that's listening. If you're thinking about launching ETFs, call Chris. Call me. You can follow any of us on social media. You can contact my team etf@nyc.com. Easy enough.

Chris Hempstead:

Again, there are no bad questions, there are none.

Douglas Yones:

No bad questions.

Chris Hempstead:

You've got to ask them. Because we're very lucky that we know a lot of the answers, Doug, but we didn't learn them overnight.

Douglas Yones:

We did not.

Chris Hempstead:

We had to learn by asking those questions.

Douglas Yones:

Yeah, there is no book out there to learn everything in the ETF industry. As I've mentioned on this podcast, we're trying, we've absorbed the ETF Institute. You can now get a certified ETF advisor designation. I have it. My whole team has it. That's available at etfcentral.com. So we're investing heavily in trying to build a place for people coming in to learn. But I read a book many years ago, someone out there can email me and remind me the name of it when you hear it.

But it was a popular book that talked about asking questions, and it puts it in an analogy of a circle where it says, "Hey, this circle is everything." It's your field of knowledge. So where do you ask questions? You ask questions at that outer ring of the circle, because that's as far as you know, and every time you ask questions and you learn, you keep expanding that ring.

But if you're around people that have a bigger circle of knowledge than you do, if you're not asking questions, they don't know where you are in your circle. So they don't know what to teach you next and where to help you. So, that gave me a great frame of reference.

I'm still asking questions in my career, because there's so many smart people around me that can help me learn and grow. Chris, for someone who's out there, they are thinking about entering the space or they're in the space and they need a relationship with Mirae, how do they contact you? How do they engage with your team? How should they be thinking about working with you?

Chris Hempstead:

Yeah, I mean, it depends. If it's an asset manager or someone looking to file for and launch an ETF under their current brand or existing brand or a new brand for that matter, a lot of times they're going to first reach out to either... I'm not sure how it works, who they get to first, their legal team, and then maybe a Medallion distributor at some point. That's usually when we start to engage. We usually get the inbound call from someone like yourself or one of their capital markets people, and they want to gauge.

Generally what they're looking to do is gauge our interest in A, being a lead market maker or possibly B, providing seed capital, C, being a partner to them on the sub-advisory space to meet their trading needs and things along those lines. That's generally where the conversation starts, and then it's going to happen at some point, "Can you help us with distribution?"

Now the good news is they're asking that question because the answer is they need help in distribution. Everyone needs help in distribution. So as market makers or market participants, people who support ETF managers, we're always curious to hear your distribution plan. The bad news is that distribution's the hardest thing to solve for.

Very few broker dealers who support ETF managers the way we do, whether as a market maker or a PT desk, very few broker dealers really have a go-to solution for distribution other than we might have a distribution email list or a client list or something like that that we send notes out to, but formal distribution is very hard to get perfect and to get right.

I don't have the answer to that, but almost everything else that you would need as a manager, we, yourself included, can help you solve for those boxes. We can help you figure out optimal index construction for liquidity and things like that. We can help you figure out pricing, we can help you figure out balance sheet usage. All of these things we can help you with, so you don't have to worry about those things.

But at the end of the day, distribution's what's going to drive your assets and assets is what gets you paid when you're a manager, you get paid fees on assets, so if you're not successful in distribution, operationally everything can be perfect, but you're making 30 or 40 basis points on no money. That's bad because then it's costly to keep that fund open. I guess that's a good news/bad news answer. We can pretty much help you get everything off your worry list except for distribution. Again, that's a big piece of it.

Douglas Yones:

It is a big piece of the puzzle. It's also a spot where the Dealer Stock Exchange tries to step in. We do an unbelievable job in terms of building content. We've become a medium machine, really trying to create shelf space and bring both advisors and investors to the table so that they can learn about ETFs and they can find out about your ETF, which is probably a good spot to plug etfcentral.com.

We've also on etfcentral.com built a free ETF screener on that website. You can just go to the website, you'll see the screener bar. You can type in anything you want to find an ETF. It's intuitive, dare I say, slightly AI, but you can type in "battery," you'll find every battery or EV ETF, as an example, yield, what income, whatever you're looking for, you can find it there at etfcentral.com, and it also is a spot where you can explore ETF University.

It's a place for educated investors to increase their knowledge when it comes to investing in ETFs. Chris, I want to thank you again for being here to share your insights. If anyone out there hasn't heard or seen Chris' son do a complete and perfect impression of Chris taking a call while on the Peloton at the same time they need to do that, Make that maybe your 2023 resolution as we head into the second part of the year. Again, follow Chris and his team on social media.

Reach out to him or contact me and I'll get you in touch with him. That is a wrap on today's edition of ETF Central's The Podcast. Stay tuned for upcoming episodes featuring thought leaders from across the ETF ecosystem. I'm Douglas Yones, head of exchange traded funds at the New York Stock Exchange, and today's host at the home of ETFs.