In this episode, Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange, is joined by Frank Koudelka, Global ETF Product Specialist for State Street, to discuss the results of the 2023 Global Megatrends Report and best practices for growing a successful ETF business.

Douglas and Frank discuss:

• How to position yourself and your business for entry into ETFs
• Trends in the industry and forecasts for upcoming industry growth
• Positioning your business for long term success

TRANSCRIPT

Douglas Yones:

Hello, and welcome to ETF Central, 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 am joined by my friend Frank Koudelka. He is Senior Vice President and Global ETF Product Specialist at State Street. He is responsible for establishing the strategic direction for State Street's ETF front-to-back service offering. We have also worked together for, boy, I guess, decades now. I can tell you, Frank is one of the most well-known and well-respected and smiling ETF industry leaders. Frank, thank you so much for being here to spend your time.

Frank Koudelka:

Oh, thank you, Doug. Thanks a lot for having me.

Douglas Yones:

So, for those that maybe haven't had a chance to work with you, or haven't spent as much time with you, could you start by just telling us a bit about you, and your team? How do you spend most of your time?

Frank Koudelka:

Sure, sure. So the ETF Product Solutions team at State Street has several key responsibilities. First and foremost, we look over our ETF servicing business. And we have about 50% of global ETF assets. We're in 13 countries. We're across 90 issuers. So that's job one, looking over that business, making sure client satisfaction is high.

The second item is analyzing the global ETF marketplace, determining the emerging trends so we can develop solutions for our clients. This is where we really take a look at local trends and then develop capabilities locally. And what I mean by that is, I recently spent two weeks in Asia, talking to clients and local market participants to see what was happening in their market, potential regulatory changes, investor behaviors, product trends, and at the same time, bringing industry intelligence to them from other countries in the Asia Pacific region, across the Americas, and Europe. And then, prior to that, I spent two weeks across Europe, doing the same. And what we find here is that local trends have a tendency to move to other regions quickly, and other times slowly. But it's important to keep up with the innovations because we want to deploy our global technology wisely. And we do know that these trends have a tendency to move around the globe. So really, the second item that I look over is what's happening in the global marketplace and staying really close to all of our issuer clients, the ecosystem.

The third is education. So we're educating our existing clients. They might want to be moving to other markets. We're educating new market participants on the trends in the market. What makes an ETF different than a mutual fund? What does the ecosystem look like? And as you can imagine, this is a growing area of my team's time. With the shift of more and more traditional fund managers utilizing the ETF investment wrapper, education is a key component to successful entry. And we spend a lot of our time working with, again, existing clients, but also new entrants into the marketplace, as I'm sure the New York Stock Exchange does as well.

And then, I'd say the fourth area that we focus a lot of our time on is working with partners like the New York Stock Exchange, with local depositories, industry working groups, authorized participants, market makers, distributors. All of this is really meant to enhance communication, drive efficiencies, and enable innovation in the marketplace. To us, that's job one, taking everything that's taking place in the ETF marketplace, bringing it together, communicating well, and driving innovation.

Douglas Yones:

And Frank, for those listening in, right, who, maybe if I started the conversation, I said to them, "Hey, how exciting does sort of that middle office, back office custody world of ETFs sound to you?" they might not realize how dynamic it really is... I mean, just listening to you talk about where you've been in the last month just shows you it's a global job. There are responsibilities everywhere that it's dynamic. There's so much growth. There's so much opportunity. You're looking at innovations. You're looking at changes. I look at the ETF industry. You and I have known each other for a very long time. Right? We're now looking at an industry, it's $7 trillion in the US alone, with over 3,100 ETFs listed in the US. If I take you back in time, I put you in a younger man's clothes, did you always want to work with ETFs? How did you kind of personally get here?

Frank Koudelka:

Yeah. So, first of all, when I started my career, ETFs weren't even invented, so they weren't even a twinkle in my eye. But my path was definitely not a straight line. So let me go back a little bit in time. So Frank Koudelka is sitting in high school. He's got good grades. He's applied to a bunch of colleges. And then he starts to do a cost analysis. And the cost of college didn't equal my bank account. So I decided to join the Marine Corps out of high school. And the thought process was, I had a lot of family members that were in the military, had served in the military, and I saw that they really had a lot of success out of that. So the thinking was, "Let's have a little discipline. Let's save some money." And it was a way that I wanted to get to tackling my goals.

So flash forward. I grew up in Queens, New York, and I was really enamored with Wall Street in the '80s. And jobs were plentiful if you really wanted to start at the bottom. So I had that experience. Now, I had a lot of discipline. I had goals and decided I was going to take a chance and take a train from Queens into lower Manhattan and apply at a bunch of the brokerage firms on Wall Street, see what was out there, and wound up getting a lot of offers but decided to go with a firm called Paine Webber, which doesn't exist in its current form anymore. Eventually acquired by UBS. And it was pretty much a mail room position. It was a group called Securities in Transit. It's where stock certificates were mailed in from our branches to the main office for processing.

So think about that. Stock certificates. Who even talks about those today? But that's what was in place in Wall Street at that time. And my job was to process those to our vault location or to a depository, where the automation of these certificates was taking place. And I quickly realized that the processes were extremely inefficient. So I worked with my supervisor, and he allowed me some free rein to start to measure productivity and to better align the resources that were at hand. And as a result of being proactive in this manner, I started getting promoted quite rapidly and taking on more operations responsibilities, all related to trade processing, securities processing for equities and bonds.

So flash forward to the late '80s. Mutual funds were now starting to take off at Paine Webber. And if you thought handling physical securities like equities and bonds was manual, mutual funds was a lot worse. So I was asked to take on a job running a call center to field, I would say, mostly complaints from our brokers, the advisors that were buying these mutual funds. And a lot of what I was receiving was, "Our fund wasn't processed. Our fund isn't in our account." You name it. It was a manual processing and issues that were taking place in the mutual fund marketplace.

Flash forward, I wound up running the entire mutual fund operations team. But I'd say most importantly here is I began to get involved with the industry, so started to join the industry working groups. And my goal was create more efficiencies in the process, leverage automation, start to build out capabilities so that that interaction between broker-dealers and the mutual fund companies would get more and more efficient. And that work on [inaudible 00:09:02] had the NSCC, the National Securities Clearing Corp., approach me as the local depository to work on further automation of the mutual fund product and also marketing. They wanted me to market the capabilities that the depository had to promote efficiencies. And if you think about mutual funds, here are technologies like Fund/SERV and Networking and the Mutual Fund Profile system. So the thought process was, I had a lot of experience on the the broker-dealer side. I could bring this now to the depository, work with mutual fund companies that were my clients, and also work with the broker-dealers and really push for more automation. And that went really well. Mutual funds started to become more efficient as a product.

And then I was recruited to come to New England for the first time. So in 1994, I was asked to develop and manage a broker-dealer services division for a mutual fund servicing organization called First Data. So again, had a lot of experience that I was able to leverage on the broker-dealer side, kind of saw where the problems were, so was asked to develop a division around making those problems go away from a broker-dealer servicing standpoint. And eventually, First Data Investor Services Group was acquired by PNC. I moved on to a firm called Investors Bank & Trust. And there I ran their Institutional Custody Group, which really was a support for registered investment advisors for their purchases of securities. Also took on the Transfer Agent Group there.

And it was in 2001 that I was first exposed to ETFs. And it was a small, upstart firm with grand aspirations. And they were called BGI. And they created the iShares ETFs, which ultimately became BlackRock iShares, the largest global issuer of ETFs. So at this point, ETFs at least started to get on my radar. And at this point, I only interacted with the tail-end of the process. So I was responsible for the transfer agent, the order-taking function, so wasn't yet involved with the basket creation process and some of the pre-trading aspects of the ETF. But soon after Investors Bank was acquired by State Street, I was asked to take on the ETF product role, with responsibility to establish and drive our strategic direction for ETF servicing.

And if I look at my career and all the different steps I took, I would say great mentors, great role models and friends I made along the way. And I really want to take a step back to where I started. So I bypassed college, jumped into the Marine Corps and ultimately into financial services. But I did wind up spending the next 30 years taking night and weekend and eventually online classes to finally get my degree from St. John's University in 2015. So two of my boys actually beat me to getting their bachelor's degrees, but I did finally accomplish that. And at a certain point in my career, it wasn't even a requirement to get my bachelor's anymore. It was really based on my work experience. But I had a lot of desire to continue to accomplish that goal. It never left me. And I was glad to have done that a couple of years ago.

Douglas Yones:

I love it. I love it. Look, first of all, thank you for your service to this country. Second, congratulations on that degree. I did see it, your posting on LinkedIn. By the way, if you don't follow Frank Koudelka on LinkedIn, you should do so. If you appreciate the boardwalk games like I do, there's a great game on the boardwalk, or any county fair, where it's guess your age within three years. And I always tell Frank he needs to play that game everywhere he goes. You will vastly underestimate Frank when he goes through his career here. You'll say, "There's no way. You just don't seem old enough." You're the youngest guy in ETFs that I know.

The other thing I hope people take away from that story is that, one, when he entered the industry, just like when I entered the industry, our roles today just didn't even exist. So for young people starting out, or a few years or even a decade into your career, don't worry about that. Worry about what Frank worried about, which was, "Where are inefficiencies?" And instead of harping on the negatives at work, harp on the positives. Say, "Hey, there's some inefficiency here. I'm going to dig in. I'm going to work on ways to make it better." Because you can build an entire successful career just focusing on how to fix problems. And that goes anywhere in probably any industry, but especially financial industry. So, Frank, so now here we are. We're at State Street. The work your team does, how does that sort of fit into the ETF ecosystem?

Frank Koudelka:

Yeah, great question, Doug. And I will tell you, when I'm at a conference, one of the most confusing things is, "What does State Street do?" And it's because we do so many things within the ecosystem. So we play different roles. In my world, it's the back and middle office servicing side. So here, we're the custodian, the administrator, the transfer agent for ETF assets. So think of custody functions like safekeeping of the assets, trade processing, settlements, reconcilement, administrative services, fund accounting, striking the daily NAVs, financial reporting, ETF basket services, compliance, trade processing, reconcilement, performance and investment analytics. And then, the transfer agent, that's recordkeeping, order-taking. I would say for ETFs, it's transfer agent light, but there is a function of transfer agency within the ecosystem.

But then, State Street also has a full array of global market services. So for ETFs, that includes assisted trading, currency hedging, electronic order taking, foreign exchange, securities lending. So that's another pillar of the State Street business, is global markets. And then we acquired a business several years ago called Charles River, Charles River Development business. And that provides front office portfolio management software, and it allows us to really perform an end-to-end servicing for an ETF issuer, the front office work around portfolio management, all the way to that middle and back office trade processing and custodial work and administrative work and the like.

And finally, what I usually get accused of at the conferences is, "What about the State Street SPDR business?" Generally, if I'm at a conference, everyone wants to know SPDR because it's the third largest issuer in the industry. Obviously, they launched the first ETF, SPY. So that's our, really, I would say, marquee capability within State Street around ETF, being an issuer. But importantly for the SPDR or the SSGA business, we also work as a subadviser for ETF issuers. So we try to use a whole State Street approach. I sit within the back and middle office servicing organization, but I bring in the global markets capabilities and the Charles River capabilities of the portfolio management and also, at times when a client needs it, the SSGA business if they need subadvisory work. So an all of State Street approach, I think, really works well to servicing clients. But that's really where we sit in the broader ETF ecosystem.

Douglas Yones:

So here we are, the State Street 2023 ETF Global Megatrends paper just released. Could you tell us a little bit about this? Where did this all sort of come from, and what is it that this research and this paper that you publish, what does it provide for the ETF industry?

Frank Koudelka:

Yeah, yeah. Thanks for mentioning it, Doug. So, back in 2009, we started to produce ETF thought leadership for clients. The first form was a monthly newsletter, really what was taking place in the industry from a regulatory standpoint or different geographic locations or a product standpoint or a new entrance into the marketplace, so really trying to cover off on macro items within the ETF ecosystem. But it was somewhat reactionary. It was, "These are things that are happening." And then we started to pivot to research papers, and a lot of those were localized. And couple of papers we've written is like, "Brexit impact to Irish ETFs" or "How to launch ETFs in Europe" or "Three steps to a successful US ETF launch," semi-transparent active, items around Australia market insights or Canada. So very much regionally or locally focused papers.

And a couple years ago we said, "Hey, we should start to think about tying it together to this megatrend theme." And it was really in the midst of COVID that we decided we were going to put out a Megatrends paper and decided we were going to do this on an annual basis. And what we were thinking about here is we're sitting at the perch of being the largest ETF service provider, about 50% of ETF assets. We're talking to our clients all the time, and we're traveling the globe and seeing these trends, market to market. And as I had mentioned earlier, these trends follow... They really travel the globe. So you get a trend in one market, and it winds up ending up in another market. So why not put together something that pulls everything together, and it talks about, "Hey, this is what we saw happening in the last year, but this is what we think we're going to be seeing into the future"?

So that's the whole theme around megatrends. So really looking at what our clients are doing in the marketplace, looking at the regulatory environment, looking at the market participants, and then bringing that all together and not only take taking a look back, but be forward-looking so we can help our clients look at the trends and decide what they want to do within the ETF marketplace. And we think that this is important, because we publish this paper, and we push it out to our clients. We push it out to other market participants. We know that we send it to you and your team at the exchange. And we think it's a win for the whole industry because it allows for the identification of these trends and for new entrants to pick up on them or existing clients to pick up on them and launch products.

And this is good for the industry. It's good for growing out the industry. And it's also a win for State Street because as a result, the marketplace grows, and that helps us from a servicing standpoint. So that was our thought process behind it. It was, "How do we really become a good partner to our clients with what we think is really good thought leadership and put it out in a thoughtful way so that we can have discussions with them and really hone in on some of the trends that we're seeing in the market?"

Douglas Yones:

Yeah. And I can tell you as, previous to my career at New York Stock Exchange, when I was working with my product team, I know all the different product teams we work with here at the exchange. Mean, these types of trends papers are just so valuable. It's an opportunity to look across the entire landscape. And it really can drive product design. A lot of times, we'll look at this here at the exchange. We'll read through because it gives us a feel for, "Where are we headed in product development? Where are the next round of successful ETFs going to come from? What will they be focused on?" so that we can build the liquidity platforms we need, so that we can build the sales and distribution platforms to help shine a light and really create shelf space for these new ETFs. So if you haven't read it, people should be reaching into it. Was there something in there, Frank, where you looked at it and said, "Hey, this was actually a bit of a surprise for me"? Did you find any surprises in the data?

Frank Koudelka:

I'll pivot on the question a little bit. I didn't find a lot of surprises per se, but the big takeaway was innovation and how ETFs continue to innovate globally, how regulatory changes focused on transparency lead to more ETF adoption. And I think of some of the journey of ETFs, starting with State Street launching the first ETF with the American Stock Exchange, which eventually became the New York Stock Exchange. Then I think Vanguard, the launch of ETFs as a share class in 2001, quite an innovation, where they could take their scale as a mutual fund manager and parlay that into investor choice by allowing investors to choose to purchase the mutual fund version of their product or the ETF version. I think of Bear Stearns back in 2008, launching the first actively managed product. Someone had to pivot to take ETFs from purely a passive product to an active product. And Bear Stearns did that in the midst of the financial crisis back in 2008.

The Bank of Japan using ETFs as a quantitative easing tool since 2010, buying it up in their balance sheet. The central public sector enterprise ETFs in India, where the Indian government was divesting of public companies and creating ETFs that they can then offer to the public to get exposure to those companies as they were becoming privatized. Taiwan, unbelievable innovations around fixed income, where insurance firms were looking to drive more yield to their portfolios, and they couldn't do it because their international allocations were limited. So they worked with local issuers to develop local products that bought US and China bonds within those products so that they could increase their allocations, increase yield. And it became one of the biggest, fastest growing markets in 2018 in the Taiwan region. And American Century in 2020 launching semi-transparent active. And the SEC in 2019, the ETF rule, and Magellan in Australia launched what they call the dual registry or the listed and unlisted products for ETFs in 2020.

And then, what we've seen is a recent trend in the US market started by Guinness Atkinson and eventually taken on by the likes of DFA and Neuberger Berman and Harbor Capital, mutual fund to ETF conversion. So I just look at the innovations that this industry has taken on. And again, it's a result of the issuers looking at the marketplace, seeing where is areas of white space or where is there opportunities; investors looking at the ETF as the investment wrapper of choice; and then the regulators making changes for, again, more transparency. And a lot of those changes wind up in further adoption of ETFs as an investment vehicle. So I look at it, and ETFs continue to answer the bell. It seems to be the right structure. I think it's the most innovative investment product that's been developed in my lifetime. And I think it's further down than that. I think it's where investors need to be, from an investment wrapper standpoint.

Douglas Yones:

Yeah, for sure. And I can tell you the growth rate has been unbelievable here at the New York Stock Exchange, and the pipeline for new launches is incredible as well. Last year we launched 55 brand-new asset managers into the ETF space. So if you're listening in and you're thinking you might want to launch an ETF, please reach out to me or my team. Frank, you guys did pretty well with your historical predictions. Could you talk a little bit more about that?

Frank Koudelka:

Yeah, yeah. So, first of all, let me give credit where credit's due. Jeff Sardinha, who runs my Americas ETF business, Karen Fitzpatrick, who runs my European business, they get a lot of the credit there. They deeply look at the local trends, and they were giving me a lot of predictions, probably a lot more than we could have put on paper, but we kind of focused on some of the megatrends. So the overall ETF growth, active crypto, ESG. So we predicted a new member of the $100 billion assets under management club. J.P. Morgan Asset Management wound up passing that threshold, so we got to check the box there. We predicted the expansion of crypto ETFs to Asia. And again, making a lot of those trips around the globe gave us some insights. And sure enough, Australia launched spot crypto ETF, and then Hong Kong launched futures-based ETFs in the Asia Pacific region. So check mark there.

We predicted active ETF launches would make up 70% of all new products in North America. We didn't nail this one, but we were pretty close. The actual amount was 64%, so we'll give ourselves maybe a B on this one. And then we predicted ESG flows in Europe would account for about 70% of overall ETF flows. Pretty close here, about 63%, so a B there. And then, finally, we predicted ETF inflows of 200 billion, and that was a stretch, and we weren't close. So the actual amount was about 125 billion. But overall, it's a lot of fun doing these. We like to look back every year, see how we did on the predictions, and then kind of look to the future and see where they'll go into the future. So we'll give herself some credit there, but I'll give most of the credit, some of my colleagues that decided to put their neck on the line for those predictions.

Douglas Yones:

Okay. Okay. So let's take out the Frank Koudelka crystal ball. I think those are actually for sale in the State Street gift shop. Tell us a little bit. What are some of your key predictions for the future?

Frank Koudelka:

Yeah, so in our Megatrends paper, we said active will take an outsized component of flow. And this one's looking pretty good to date. So through the first four months of 2023, active have accounted for 25% of global ETF flows. And if you look at 2022, it was 14% and that was pretty significant. 2021 was 10%, so a nice ramp-up. And again, I think it's global regulators are becoming more accommodating to active ETFs. We've seen regulators approve the ability for issuers to launch active products. And again, the investor adoption of the product has continued to be significant. And we think that's all good for active management coming into the ETF wrapper. Second prediction we made was fixed income will shine this year, and this one's looking very good. And I think this one was a layup for us, quite honestly. Interest rates rising, the search for yield. Through April, fixed income ETFs both on the active and passive side have taken in about 50% of the flow. And again, investors capitalizing on the rising rate environment, leveraging fixed income ETFs to gain that exposure. So we're looking pretty good here.

Third prediction, growth in Europe will accelerate, and this is looking really well as well. Europe is on the pace through April to double the flows that they had last year. If you look at the BlackRock recent survey, they conducted with YouGov, they're seeing increasing retail adoption. If you think about Europe, it's traditionally been very much institutionally focused. About 80% of the assets historically have been institutions. So if we get that retail adoption like we've seen in the US, that bodes well for significant growth across Europe. We also see the EU taking a hard look at the potential elimination of retrocessions, or at least providing further transparency. And what we've seen is where there is a level playing field, where you take away embedded commissions or platform fees, ETFs perform very well because you kind of get what the fee says it is, no hidden fees. So we think that this bodes well if the EU takes some action there.

So all that bodes well for continued growth in the European region. And then, we said ESG, we'll see pockets of growth. There was a lot of momentum in ESG in 2020. 2021 started to dissipate, in the US specifically in 2022. And this is looking pretty good as well. Europe is seeing significant leadership within ESG. The flows are very similar to last year, so 60 to 65% of flows going to ESG strategies. The US has gone negative in 2023. Canada, Asia Pacific has been somewhat muted. So we think that our predictions have been pretty good so far, we look at our Megatrend. And we co-sponsored this Trackinsight Global ETF Survey. And we're finding that this was really a validation to what some of our predictions were. And it was important to us to hear what investors had to say. And Trackinsight sent this survey out. They worked with the New York Stock Exchange on this as well through ETF Central. And 500 plus institutional investors came back, and they really provided a lot of validation to what we've been seeing.

And I tell you, one thing really stuck out to me. 80% of investors said that they would be more inclined to invest in a strategy packaged as an ETF rather than a mutual fund. And that was a question asked in North America specifically. So that really struck me, that ETFs continue to gain this momentum as a very efficient vehicle that you can get that strategy, be it passive or active, on exchange. And we see this trend coming to fruition. The 65 mutual funds have either converted or in the process of converting to ETFs. So it's a really great data point. It shows that a lot of what we've seen in the industry through our Megatrends and a lot of what we've had validated through the Trackinsight Global ETF Survey is coming to fruition.

Douglas Yones:

Yeah. And I mean, boy, the conversion data, if you look backwards, you'd say, "Wow, that's unbelievable." I'll put a kind of a future claim in there because we can see the pipeline. The number in arrears is way lower than what's coming through the pipeline. The pipeline is absolutely amazing. We will see a balloon of AUM in the ETF space just as a result of conversions. And so if you're out there, and you're looking at that, please reach out to Frank and his team. Please reach out to me and my team. We're happy to walk you through sort of best practices and what we've seen with folks who are looking to convert not just mutual funds, but SMAs. We've had a lot of SMA conversions happening as well in the industry. Frank, we probably should have started here, but for someone who's like, "Okay, I get it. This 2023 ETF Global Megatrends paper, I need to read it," where should they go to get a copy of the survey?

Frank Koudelka:

Yeah, sure. So all of our ETF research can be found on statestreet.com/etfservicing. The Trackinsight survey can be found on etfcentral.com.

Douglas Yones:

Yeah, exactly. And ETF Central, is obviously, the home of this podcast. But if you haven't spent time on there, please go and check it out. One of the key features there is we have put all of the ETF industry data for every single ETF in the US on that website for free. You do not need to pay a vendor for this data. You can go into that search bar, and if you like a theme... Let's say you're listening to what Frank's talking about and you like a particular theme, or maybe you just start thinking about something else... EV, metals, carbon... all you have to do is type in that theme. It'll give you every single US-listed ETF that covers that theme. You can learn everything about those ETFs, find it all there, and, of course, find the survey. Frank, you and I have known each other for many years. Oh, boy. The better part of two decades ago, in fact, we were working together overseas in Asia, in Australia.

Frank Koudelka:

Yes.

Douglas Yones:

You've helped-

Frank Koudelka:

Canada.

Douglas Yones:

Canada. You've helped many, many asset managers enter the ETF space. I know I'm putting you on the spot a little, but do you have some kind of pro tips, best practices, here's what people really should be thinking about as they start to enter the ETF industry?

Frank Koudelka:

Yeah, so not putting me on the spot at all. If I couldn't help with this, then I shouldn't be in this place. But I'd say get educated. ETFs are different. If an issuer is new to the ETF as an investment wrapper, leverage firms like State Street and the New York Stock Exchange to assist with that education. There's enough difference in launching, managing, and servicing that education is key. We've worked with clients, some of them, 10 to years before they've decided to launch a product. They were traditional mutual fund managers and really wanted to take a journey before they jumped into the ETF marketplace. So don't be shy about getting an education. There are plenty in the industry that very willing to do that.

I'd say the second is to stay close to your DNA. Investors want to buy what asset managers are known for. They don't want to buy the shiny new toys. Stay close to the DNA. Launch what you specialize in, and there's a better chance that you're going to have adoption of your product, as opposed to chasing what's new in the industry. And I'd say investing in the right people in your organization. I said this a thousand times. Capital markets is an absolutely critical resource. Understanding liquidity, understanding interaction with trading on exchange, understanding the participants like authorized participants and market makers and other liquidity providers is key to the success or failure of an ETF. So bringing in that expertise is worth its weight in gold. So hiring capital markets. And I'd say right behind that is ETF sales specialist.

So I wouldn't suggest hiring a completely new team of salespeople to service your ETF if you're a mutual fund manager or manage other pooled products. But I would say that bringing in specialists will allow for training up of your existing wholesalers. It will allow for tapping into areas in the ecosystem where mutual funds don't play as significantly as ETFs play. It also allows to tap into pockets of capital that you'd be able to deploy for ETFs. So capital markets resource is important, but also sales specialists to help navigate what makes ETFs different within the ecosystem. So I'd say that those are the areas that are most important when thinking about launching an ETF. Education, staying close to your DNA, and bringing the right people into your organization so that you could be successful.

Douglas Yones:

Yeah. I couldn't agree more, especially the capital markets comment. I think sometimes people underestimate the importance of worrying about ETF liquidity. Please come talk to someone in the industry about that before you enter the space. Obviously, we focus on that here at the New York Stock Exchange, and in fact, we focus on it so heavily that our programs outweigh the other two exchanges for new ETFs that come into New York Stock Exchange. Our spreads here, particularly active spreads, in many cases are 14 to 20 basis points lower than if you list somewhere else. So some of these little decisions you don't realize make such a big impact, and that becomes a new sales objection for your team, that instead of just talking about investment objectives, now suddenly they're talking about liquidity profiles of an ETF.

So please reach out to one of us if we can be helpful. Along those lines, for someone who's out there listening in, Frank, and they're saying, "Hey, we actually are starting to think about ETFs. We want to engage. We want to learn. We want to get some of your advice," how do they reach you? How should they be engaging with you and your team?

Frank Koudelka:

Yeah. You can definitely find me on LinkedIn. But also go to our website, statestreet.com/etfservicing. If you have an existing relationship with State Street, you go to your client service or your sales resource, and they will definitely bring you to me, and be happy to engage with you.

Douglas Yones:

Yeah. If you're having any trouble there, just send us an email, ETF@nyse.com, and we'll get you to the right place. Frank and I, as I mentioned... I'm not joking. He and I started working together, I think, probably around 1999, or 2000 as I was getting ready to launch my first ETF in 2001. We've worked together across every single domicile in the world for listing ETFs. And he and his team are absolute experts, and they come with a smile alongside. So please reach out.

Now, that is a wrap on this edition of ETF Central, the podcast. As a reminder, you can find this episode as well as many other episodes, and you can spend time on etfcentral.com, learning about the new Certified ETF Advisor designation. Just go there. Go there now, etfcentral.com. You can find everything you're looking for, and it's all free. I want to thank you again, Frank, for being here to share your insights. Stay tuned for upcoming episodes featuring thought leaders from across the ETF ecosystem. I'm Douglas Yones, your host, head of exchange-traded funds at the New York Stock Exchange, the home of ETFs.

 [FN1]@Houda the episode will go live 6am EST on Monday (12pm Paris time), could you please add the link to the episode here from Spotify. Search “ETF Central Podcast” on Spotify to get access to the latest episode.