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[Insert podcast]
By Jonathan Liss
The latest episode of Let’s Talk ETFs is perhaps not as actionable for investors in terms of which specific funds to buy or sell but it is an incredibly important conversation nonetheless – and one that can actually be quite actionable in helping investors understand the crucial processes that lie at the heart of ETF efficiency, transparency and keeping underlying costs low.
As both an Authorized Participant and Market Maker, BNP Paribas (OTCQX:BNPQF) plays a crucial ‘back-office’ role in the functioning of ETF markets on both sides of the Atlantic. Today’s guests work on the capital markets side of BNP’s ETF business. They are Jeffrey Baccash, Head of ETF Solutions and Laurent Gauthier, Managing Director, Head of Prime Trading, America. During the far-ranging conversation that follows, Jeffrey and Laurent peel back the curtains on some of the less known aspects of the operational side of the ETF business to reveal a process that is both ingenious in its conception and yet surprisingly elegant in its simplicity.
Click ‘play’ above to listen to the full conversation.
Topics Covered
- 4:00 – Meet Laurent Gauthier and Jeffrey Baccash
- 7:50 – Understanding the ETF creation-redemption process
- 12:50 – Exemptive Relief: A mandate for transparency
- 14:25 – Why do creations and redemptions often take place in large blocks of 50,000 shares?
- 17:00 – Understanding key differences in the roles played by Authorized Participants and Market Makers
- 19:55 – Offering a full range of fund management services is crucial for BNP Paribas’ (OTCQX:BNPQF) (OTCQX:BNPQY) (OTCPK:BNPZY) development and maintenance of key client relationships
- 21:45 – In-kind transactions go a long way towards explaining why ETFs are cheaper to run than other fund structures – and also more tax efficient
- 26:05 – Understanding how the ETF sausage is made for more complex and exotic ETFs such as futures-based and swap-based exchange-traded products
- 29:30 – The unique case of exchange-traded notes (ETNs)
- 31:15 – Breaking down a fund’s total expense ratio (NASDAQ:TER)
- 36:00 – Key differences between U.S. and European ETF markets: market maturity, overall investing culture and underlying behavioral differences
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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