RBC warns ‘finite’ market-maker capital for ETF share class
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The silhouettes of executives are seen on stage during the Royal Bank of Canada (RBC) annual general meeting in Toronto on April 6, 2017. Photo by Cole Burston/BloombergArticle contentMarket-making firms in the US$13 trillion exchange-traded fund industry may come under strain amid a potential wave of new listings in 2026, with U.S. regulators poised to allow asset managers to offer ETFs as share classes of mutual funds.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentThat’s the view of Valerie Grimba, director of global ETF strategy at RBC Capital Markets, which is one of the top-10 largest ETF market-makers. Specifically, market-makers don’t have unlimited capital to devote to trading ETFs intraday and seeding new fund launches, Grimba said. Should the introduction of dual-share classes in 2026 spur hundreds of new listings, as some industry watchers have called for, the market-making system could run into a bottleneck of sorts, she said.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.We apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Play VideoArticle contentArticle content“There are some finite resources in the system. One that’s very important is, of course, a balance sheet, or capital that is put up by market makers,” Grimba said on Bloomberg Television’s ETF IQ. “That is a finite resource that probably is going to be constrained if you see the number of ETFs grow.”Article contentInvestorCanada's best source for investing news, analysis and insight.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentAnticipation is building for the first ETF share classes of mutual funds to launch early next year after the U.S. Securities and Exchange Commission gave Dimensional Fund Advisors formal approval to do so last month. Dozens of other firms are waiting for similar approval, including BlackRock Inc., Fidelity Investments and T.
Rowe Price Group.Article contentArticle contentHowever, Grimba isn’t alone in her concerns about the burden that the dual-share class structure could place on the ETF ecosystem. Potential operational and market-structure challenges have kept issuers such as Capital Group away from filing for permission to use the fund blueprint, while Nasdaq Inc. is staffing up ahead of the potential deluge.Article contentAt the heart of the concerns is the fact that the ETF industry is served by a concentrated handful of market-makers. While there are more than 250 ETF issuers, there are only 15 market-making firms serving the industry, with the top five — Jane Street, Virtu, Susquehanna, Citadel Securities and GTS — acting as lead market maker for more than 70 per cent of ETFs, according to Bloomberg Intelligence.Article contentArticle contentMarket-makers are going to prioritize working with the asset managers that they already have an economic relationship with, such as trading during index rebalances or partnering on derivative structures, Grimba said.Article contentRead More Bitcoin ETF investors came late to the crypto party Vanguard will now allow crypto ETFs on its platform Article content“Market makers are going to be more selective with the ETF issuers that they work with,” Grimba said. “We just want to make sure that even the smaller, more innovative ETF asset managers are able to come to market and not be hamstrung by us just working the with largest providers.”Article contentBloomberg.comArticle contentTrending The Federal Reserve’s rate cut was a clear signal to investors Investor Garry Marr: How raiding your TFSA before the end of year could save you thousands Personal Finance McKinsey plots thousands of layoffs in consulting slowdown Work Posthaste: Canada's provinces face 'deteriorating' outlook, says Fitch Ratings News CRA's 100-day plan results are not the presents Canadians want or need Taxes Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.
The Federal Reserve’s rate cut was a clear signal to investors Investor Garry Marr: How raiding your TFSA before the end of year could save you thousands Personal Finance McKinsey plots thousands of layoffs in consulting slowdown Work Posthaste: Canada's provinces face 'deteriorating' outlook, says Fitch Ratings News CRA's 100-day plan results are not the presents Canadians want or need Taxes