Morley Conn

Well, let's get back to the fact that both in Canada, ETFs are issued out of a mutual fund trust.

So we're actually very similar outside of some of the components, the fact that they trade intraday on an exchange.

And there are, because of the creation redemption process, they are different than mutual funds.

They are issued both as mutual fund trusts.

And so from a tax standpoint, if a holder or if the issuer is required to sell because of redemptions, some stocks or other securities in the fund and recognize some sort of capital gain, that redemption, that sale is going to impact not only the investor that's selling, but it has potential to impact all of the holders of the fund.

And the capital gain refund in Canada, that's used to mitigate some of this for the holders, the existing holders of the funds.

So they're not hit as severely as they otherwise would be.

But the secondary trade that occurs is a really important part of avoiding even having to trip and recognize capital gains in the fund.

Now, if there's enough trade in the market and market makers are involved in that trade and are involved in like if we were to buy a sufficient amount, there was a net flow out of a particular ETF.

And we, as the market maker, we're buying a lot.

At some point, if we hit what are referred to as the prescribed number of units, the number of units that you can redeem as a market maker, you can redeem to the issuer

that will potentially lead to a capital gain event for holders of the ETF.

But before that occurs, the secondary trade that occurs between buyer and seller will avoid some of that possible capital gain.

Yes, exactly.

Well, because we have the creation redemption process, the market makers, the authorized participants are going to be out there providing bids and offers on the various securities.

If

an ETF trades too far outside of the value, if it's trading too below its net asset value, market makers are going to be buying that security.

And in the reverse, they're going to be selling it if it's trading above net asset value, fair value, and they're going to be hedging themselves

with securities the other way.

Well, you do see dislocations in the market that occur from time to time, guys.