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Chapter 1: What is the main topic discussed in this episode?
This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, Chief Investment Officer, and Cameron Passmore, Chief Executive Officer at PWL Capital.
Welcome to episode 413. And Ben, I got to thank you because you brought me back to, and I can remember the dinners.
Chapter 2: Who are the key players in the Canadian ETF ecosystem?
I think I've talked about this in episodes years ago, but when we first discovered ETFs back in the mid-90s, and to understand how they work, because understanding how a mutual fund works is very straightforward. Understanding how an ETF works and how much goes on behind the scenes is so fascinating, but so head scratching.
Chapter 3: How does the creation and redemption process of ETFs work?
So if you imagine 30 years ago or so, where none of this made any sense when you're explaining it. We're like creation redemption, but how does this happen?
Chapter 4: What are the differences between ETF portfolio management and mutual fund management?
I was in New York just after 9-11 happened and happened to get a tour of the Amex, the American Stock Exchange floor. And we were watching traders on the floor doing these arbitrage trades.
Chapter 5: Why does ETF trading volume often exceed primary market creations?
to close the gap with NAB. And all of a sudden, things started making sense. Of course, it all got rationalized into the NYSE, I think, since then. But it's just such an unbelievable mechanism.
Chapter 6: What happens when ETF market prices diverge from net asset value (NAV)?
And today's guest, Morley Khan, did a great job explaining so many things that happened behind the scenes. And again, it just brought me back 30 years.
It's just wild.
Chapter 7: How do market makers manage ETF pricing during market disruptions?
Morley, he's got over 30 years of experience in sales and trading roles across foreign exchange, money markets, and equities. Right now, he's responsible for sales and strategy in ETF services at Scotiabank Global Banking and Markets. So we talk about ETF market makers. He is working in that capacity. He's working at Scotiabank in the market making function.
He's got an MBA from the University of Windsor and a BA from York University. He's also a CFA charterholder and a CMT. He recently joined the board of the Canadian Security Traders Association and is a past member of the Institutional Equity Traders Association board.
He knows a lot about what goes on behind the scenes in terms of how an ETF actually functions and all the work that goes into it that people don't tend to see or think about. He listens to the podcast. We chatted with that a little bit during the recording and he reached out and was like, hey, you guys have done so much great content.
but you've never done like a really deep dive on how ETFs work and the Canadian ETF market in particular, which has some pretty meaningful differences relative to the US market. We went deep on all that stuff.
Yeah, he does a good job explaining it and it's complicated. And I thought it was interesting how he talked about not just the science and the math and the programming, but also the art.
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Chapter 8: What are the best practices for retail investors when trading ETFs?
and the risk taking. There's a lot more to it than you think. I think we all take it for granted, but it's an incredible tool. It's done an incredible job of getting people engaged in personal investing. It's also done a great job of reducing costs, creating liquidity. It's just an amazing creation. Yeah, it really is. So you're good to go. Let's go to our conversation with Morley Kahn.
Morley Kahn, welcome to the Rational Reminder Podcast.
Thank you, Ben. Thanks, Cameron. It's a real honor to be here. I'm a longstanding viewer and listener of the podcast. And the caliber of guests that you've had on here really makes it a true honor to be on the show. And in honor of being on the show, guys, I actually cooked up some ETFs in your honor. And it's got some really healthy single stock ETFs in it.
We've got some levered ETFs, some thematics, because I know, Ben, you love the taste of thematics. And we even have some buffered ETFs in there as well. So perhaps after our conversation, we can enjoy some ETF slop together.
I've got to ask Morley, is there any Scotia ETF slop in that bucket?
Of course not. Of course there's none. I am an equal opportunist, but there's no Scotia slop in that concoction that I've made today.
Glad to hear it. Okay. To jump into the questions we have for you, can you talk about who the players are that are involved with creating and managing an ETF?
The ETF is created by the asset managers. These are also referred to as the ETF issuers. They will conceive of new ideas to bring to market. And then they will lead with those. And they will, of course, then work with their portfolio managers who will then manage those baskets of securities. Could be stocks, commodities, bonds, what have you.
And then the next natural player is going to be the custodian guys. The custodian is responsible for the movement of funds in and out of the ETF.
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