Issuers Employ 'ETF-In-A-Box' Service

May 15, 2015

Six years ago, J. Garrett Stevens, CEO of FaithShares, had just launched his first ETFs. He and his partners sat back, counted their victories, and eagerly waited for investors to bang down the door to buy up the funds.

They never did.

The rest of the story is all too familiar. Stevens and his partners had spent far more than they anticipated on getting their funds to market, with little left over to make sure investors actually knew the funds existed. As a result, the five FaithShares ETFs, despite solid performance, failed to accrue enough assets to survive. FaithShares shuttered its doors in 2011.

But a funny thing happened on the way to dissolution.

"People started calling, wanting to know if they could buy our exemptive relief," said Stevens. "Or they wanted to know if we could consult and help them launch their own funds, since we'd already been down that road."

That gave Stevens an idea: a white-label service that would shoulder the burden for would-be ETF providers looking to launch their very own funds. Thus was Exchange-Traded Concept (ETC) born.

Founded in 2011, ETC offers an "ETF-In-A-Box" service that slashes the time it takes to launch a passive index ETF to just three months, while shaving as much as 90% off the associated costs of filing.

"ETC came out of a very painful time for us," said Stevens. "But it gave us perspective, too. We were able to make lemonade out of lemons."

How It Works
Launching an ETF is not for the faint of heart—or those with empty coffers. Most funds can take anywhere from one to three years to traverse the necessary regulatory channels to make it to market. Startup costs range from $750,000 to $1 million, estimates Stevens, which includes legal fees, due diligence costs, listing fees, seed funds, the associated audits and so on.

By using the ETF-In-A-Box platform, however, the cost to bring an ETF to launch—soup to nuts—is roughly $100,000. Furthermore, most funds can be launched in just 75 days.

It's possible because ETC already possesses exemptive relief, the most expensive and time-consuming piece of the legal puzzle in launching an ETF. Obtaining exemptive relief can take months—even years—of ping-ponging between lawyers and the SEC, but once in hand, it covers any similar ETFs a firm might launch.

 

 

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