1. Pre-Launch Market Maker Communication
- Much of the discussion came back to a simple but persistent problem: many issuers treat the listing date and the launch date as the same day, so PCFs arrive too late for authorised participants and market makers to complete their setup.
- The view from the group was that the fund should launch legally first, then list on exchange once the product is ready to be priced. A model portfolio shared with APs and market makers weeks before listing, even before the fund formally exists, gives everyone the time they need.
- “No surprises” was cited as a core principle. For exotic or OTC-heavy strategies, APs have limited bandwidth; if a product cannot be priced attractively it is better to know before launch.
- Standardisation of instrument representation is still an open problem in Europe. Equities and bonds are generally fine, but futures, options and FX forwards have no agreed format. The group noted as many as seven or eight different ways to represent a single option across issuers, and FX forwards often arrive without expiry dates. OTC instruments such as interest rate swaps have no agreed reference identifier at all.
- FIGI and OCC came up as possible candidates. OCC IDs can be cross-referenced to FIGI for US-listed options. A follow-up conversation on identifiers is planned.
2. Active ETF Classification
Bernie (Ultumus) presented a five-tier, mandate-based classification framework for group review, covering the full range from index tracker to pure stock selection. The classification framework is circulated separately for feedback.
- The group broadly preferred a mandate-based approach over one built on tracking error. The concern with tracking error is that it can be gamed through benchmark selection, and it tells you nothing useful at launch when there is no history to draw on.
- One gap came up: money market and ultra-short-term funds sit in the framework as active by default because they have no benchmark, but they are a very different animal from a genuinely active strategy. A money market category will be added to the next version.
- Rebalancing frequency emerged as a useful proxy for portfolio turnover at launch, when there is no track record to go on. Ultumus is looking at adding rebalance frequency and rebalance percentage fields to its PCF format, and will follow up with relevant participants before confirming.
3. Semi-Transparent ETFs
- The group's view was fairly clear: the market is moving toward full transparency, not away from it. Vanguard's recent announcement on daily holdings disclosure was cited as a signal of where things are heading.
Deferred to Meeting #4
Two topics ran out of time and will be picked up at Meeting #4:
- 24-Hour ETF Trading
- Tokenised ETFs