Integral to Growth
“Reggie and his team have been an integral part of the growth of the ETF business,” says Shawn Matthews, chief executive officer of Cantor’s brokerage unit. “A team of that reputation and knowledge is very difficult to find and would be very difficult to replicate.”
The love for ETFs is not universal. ETFs may accelerate and magnify market swings by moving huge blocks of stock in an instant. After an accidental sell order in futures contracts on May 6, 2010, caused U.S. stocks to lose $862 billion in value in 20 minutes, an investigation by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission found that 70 percent of all erroneous trades were in ETFs.
Some ETF providers offer funds designed specifically to give sophisticated institutions a simpler way to make complex bets, sometimes using leverage and derivatives. Once these funds are listed, anyone with an online brokerage account can buy them.
‘Too Much Risk’
Browne says the May 6 incident had more to do with the sudden withdrawal of market makers across all equities-trading platforms, and with high-frequency trading via powerful computers, than it did with the ETFs themselves. And he says he doesn’t get involved in bringing to market leveraged ETFs, which can amplify the daily movements of a market two or more times.
“Too much risk. I just don’t do it,” he says.
Browne’s career in ETFs started in 1997, when he joined a group at the American Stock Exchange making markets for the SPDR S&P 500 ETF Trust, known as the Spider. Introduced by State Street Corp. in 1993, it was the first U.S. ETF. Today, his Cantor team of 26 buys and sells shares in hundreds of funds that hold tens of thousands of securities linked to companies, currencies and commodities around the world. It’s a delicate, sometimes risky task performed under pressure.
Providing Liquidity
“If you misprice an ETF” -- that is, offer to buy or sell at the wrong price -- says Darren Taube, one of Browne’s two partners in running the ETF desk, “another firm will come and empty your coffers.”