"The fact that he's a competitor to a firm that's been denied an exemption would certainly make the SEC look at anything he says with a skeptical eye," said Mercer Bullard, a University of Mississippi School of Law professor and former SEC official. "That being said there are good reasons to be careful about what they approve."
Yet Gastineau is not alone in raising concerns about how ETFs trade and whether investors trade at fair prices and even some SEC commissioners have done so.
Shallow Data
Investors rely on what Gastineau calls shallow data, the bid-ask spread between the prices offered to sell and buy ETF shares, and so they underestimate the cost of trading, according to Gastineau in the upcoming Journal of Portfolio Management article he co-authored with two colleagues that was reviewed by Reuters.
To assess the true costs, investors should consider harder-to-discover data, such as the value of the stocks or bonds the fund holds at the time that the ETF is being traded, he argues.
The funds publish their so-called net asset value (NAV) every day after the markets close, but the securities prices change as soon as markets open the next day, leaving investors to buy a portfolio they cannot completely evaluate. Even at the close, an ETF's trading price and its NAV can differ by as much as 3.0 percent, Gastineau said.
Gastineau is all for keeping the industry he helped build alive and still argues investors are better off for having exchange-traded products, but with some limits.
"With better valuation information and improved trading methods, ETPs should continue to grow," he said.