The exchange traded fund (ETF) industry is evolving and more players are accelerating efforts in the space, although it’s not necessarily as providers. Case in point: Citi (NYSE: C), which just appointed Jeffrey McCarthy as its newest global ETF product head within Citi’s Securities and Fund Services Business (SFS). We caught up with McCarthy to learn a little more about what Citi’s strategic plan is.
In his new position, McCarthy has been charged with taking a holistic, global view of all the services Citi offers the global investment industry, pulling it together and offering a multi-faceted solution for ETF issuers under the newly formed ETF Product Consulting Group.
The product group is responsible for driving product innovation, solutions and ETF marketplace development, as well as providing solutions to pre-launch support, capital & liquidity solutions, transactional services, index calculation and distribution analysis through numerous Citi outlets. [The NYSE: Where An ETF’s Life Begins.]
That means McCarthy’s team is there for anything and everything related to the life span of an ETF. The pre-launch product support includes structure consulting, regulatory filings, help understanding local market practices, cross-listings and index services. Another way to look at it is a “pre to post-trade solution.”
Citi acts as an authorized participant (AP) for many ETFs listed on U.S. and international exchanges. They also have dedicated trading and creation/redemption desks. [The ETF Creation Redemption Process Explained.]
The Future of ETFs
McCarthy foresees big growth for the ETF industry in the coming years. “I feel the industry is focusing on distribution and there’s been a lot of great product development and launches in the last few years.”
The hot spots for launches, he says, are in Asia and Latin America. China, in particular, has regulators and asset managers looking to launch more products there and it’s something the country is interested in doing. Asset managers also seem to be exploring ways to enter Latin America by launching funds there or cross-listing. [February Gives ETF Investors Some Love.]
One of the challenges of expanding globally, McCarthy says, is figuring out ways to collapse and combine liquidity pools throughout different regions. For example, in Europe, a number of products are cross-listed, which has led to fragmenting.
But at the end of the day, don’t expect the United States to give up its first-place position in the ETF industry anytime soon. McCarthy sees it remaining the dominant market for the foreseeable future.
Citi’s Role
McCarthy says Citi is well-positioned to serve the needs of a growing and changing industry. “We have a strong services operation, a strong capital market presence globally,” he says. For an asset manager looking to have everything in one place, Citi’s offering is a powerful one. [How to Trade Large Blocks of ETFs Efficiently.]
“We’re helping to bring the asset manager from strategy to IPO,” McCarthy says. “We offer a solutions-based offering, where they can utilize us for multiple components.”
One question remains: will Citi actually launch ETFs itself? You may have to wait – there are no current plans to do that, according to McCarthy. “Our focus is to enable our clients’ ETF innovation, not to compete with them.”
McCarthy came to Citi from Brown Brothers Harriman, where he worked for six years as their global ETF product manager.
Neeraj Sahai, Global Head of Citi’s Securities and Fund Services, believes that “Jeff’s extensive market experience and product expertise will complement Citi’s emerging market capabilities and help enable our asset manager clients launch new ETF products on a comprehensive basis.”
Heather Hayes and Max Chen contributed to this article.