ETF Insider is a new series with visionaries and thought leaders who transformed the ETF industry. This Q&A features insights from NASDAQ's Dave LaValle:
How long have you been at NASDAQ and what is your current role? What did you do before?
I've worked at NASDAQ for almost three years. Prior to working here, I managed a broker/dealer trader firm that specialized in trading cash equities and ETFs. Currently, I run the ETF market at NASDAQ focusing on the listing and trading businesses while supporting the issuer, market making and liquidity providing communities.
How did you get into ETFs?
My career started on the floor of the American Stock Exchange, the place where the first ETF was launched and where the first 15 years of ETF innovation happened. Since the beginning of my career, I have been part of the ETF community that supported and brought them to market.
Current Environment: What does NASDAQ OMX do with ETFs?
NASDAQ considers ourselves to be a thought leader in the industry. Seated as an exchange and a global indexer, we are in a unique position to support ETFs in that we assist products coming to market as well as the liquidity and trading of those products in the market.
From your perspective, what are the major benefits that ETFs bring to your client base?
Critical to the role of an exchange is capital formation. ETFs facilitate capital formation by allowing ETF issuers to bring products to market that offer investors unique investment opportunities in multiple asset classes that they might not otherwise be able to access.
What are the biggest challenges to ETFs, how do you suggest we overcome them?
Lack of education among the investor and the advisor communities. Broadly speaking, the ETF product set has proliferated faster than the industry has been able to learn about it. Education about who should be using ETFs as an investment vehicle, what benefits they offer investors, how the products are structured, why they can be an effective portion of one’s portfolio and a better understanding of how to define a product’s liquidity the most important challenges to overcome.
How have ETFs responded to recent events in the world economy?
ETFs have a global footprint in that they’re listed around the world in addition to domestic products, offering investment exposure to the global markets across multiple asset classes. As such, ETF products are often a good barometer of how the market responds to global and geopolitical events.
How have strategies changed over the years?
ETF strategies started with simple cash equity based products and have evolved over the past 20 years to more sophisticated strategies that offer investment exposure to global markets across multiple asset classes including: fixed income, currency and commodities. Recently we have seen issuers contemplating fully transparent active strategies, employing many of the same investment theses that currently exist in passive strategies. It is also interesting that as the ETF industry has developed so has indexing. As ETF strategies have evolved, the indexing industry has worked to service the ETF Issuer community allowing them to deliver products that track more sophisticated methodologies and aim to enhance returns on traditional indexes.
Looking Ahead: What is the newest thing in ETFs, what are you most excited about?
- Incentive Programs allowing issuers to pay market makers, like our Market Quality Program
- Non-transparent actively managed ETFs
- Inclusion of ETFs in direct contribution programs
How do you see the future of ETFs changing over time? How will this effect or not effect Mutual Funds?
I continue to see many naysayers who think that the ETF product suite is saturated, however, I disagree. ETP offerings are going to be pruned and cultivated. Furthermore, there is going to be an increased focus on product performance because that will be the best metric to compare ETFs with similar strategies. Traditional 1940 Act asset managers will continue to watch the ETF market closely and over time, will determine how best to utilize the product to support their investor base.
What will it take to grow the ETF asset base to 5 trillion dollars?
Quality products, quality performance in those products and broader education will fuel the future of ETF asset growth. I look forward to celebrating ETF assets eclipsing $5 trillion in assets!
What do you like to do for fun outside the office?
Some would call me a foodie and others around the office have dubbed me “The Concierge.” Either way, I do enjoy new restaurants and cafes that spring up in New York City or Brooklyn, where I live. I like to say that my affinity for good food and sweets helps support my distance running habit.