Scott: Thanks Frank. And you are correct – it was a long journey but one we thought was incredibly important so that investors had a choice when it came to ETFs and weren’t restricted to only index returns less fees. Our conversations with regulators extended way back – there are even mentions as early as 2009 in the Wall Street Journal about our thoughts on active ETFs.

To address your question – what stayed the same was our goal and our core beliefs. Our goal was to offer investors the ability to access our active management expertise in the ETF wrapper – a wrapper that offers certain investors benefits relative to other product structures. Where this became tricky, particularly on the active equity side, was that the Securities and Exchange Commission (SEC) had always required ETF issuers to disclose holdings each day as a condition for approval. Underpinning the SEC’s requirement of daily holdings disclosure was their belief that would enable market makers to price ETFs around their net asset value (NAV) if they had this data resulting in good trade execution for investors. We agreed with the SEC that it was important for ETFs to trade around NAV, but we believed that there was other information that market makers could use to ensure orderly and efficient ETF trading markets.

For passive products, disclosing holdings each day was not an issue and the information had very little value since in most cases the benchmark constituents and weights were already widely known. As an active manager, we were concerned that disclosing our holdings each day could lead to the front-running of our trading strategies, which ultimately increases our transaction costs and hurts our client’s performance. So instead, we went to work on developing an efficient ETF process that would shield our investment intellectual property thereby protecting our client’s performance, while also giving market makers the information they needed to make markets in our ETFs. We wanted to accomplish both objectives without complicating the ETF structure in the marketplace. To do this, we engaged with the entire ETF ecosystem – State Street included – to collectively develop a model that would make sense so that we could garner broad support for our proposal.

While some of the languages of our process and supporting data points may have changed during our conversations with the SEC, perhaps the biggest change during this period was investor preferences. We saw ETFs continue to grow in an explosive way as more taxable investors began to appreciate the convenience, versatility, relative tax-efficiency and lower costs of the ETF wrapper. This only added further conviction to our belief that it was important to get a model approved that would allow active managers the ability to offer ETFs without subjecting investors to performance degradation. The SEC, to its credit, also noticed more investors gravitating to ETFs and put in the work to understand the various proposals to ensure they would operate as intended in the market. While the journey may have taken some time, we believe the outcome is a big win for investors of all kinds. For those that prefer active management, they can now consider the ETF wrapper. For investors that prefer the ETF vehicle, they now have added choice if they want to go beyond the returns of a benchmark.