Behind The ETF Scenes: BNY Mellon

There is a lot of work and services behind the scenes of the ETF industry, as BNY’s Jeff McCarthy explains.

Reviewed by: Drew Voros
Edited by: Drew Voros

Jeff McCarthyJeff McCarthy is head of exchange-traded product services at BNY Mellon, a firm that touches all parts of the ETF ecosystem. While not an ETF issuer, BNY Mellon does host ETF services, including subadvising on ETFs, being an authorized participant and market maker, as well as other ETF and investment services. BNY Mellon, along with First Trust and Goldman Sachs, are presenting a webinar with, “Positioning for Rising Rates with Fixed-Income ETFs.” Please join us on Wednesday, Nov. 7, at 2:00 p.m. ET. Register here. BNY Mellon isn’t an obvious player in the ETF industry, but a significant one nonetheless. What’s your role?

Jeffrey McCarthy: Our position in the market stands on multiple fronts. As a firm, our main businesses that are active in the ecosystem for ETFs are asset servicing. So clearly that is behind the scenes, taking care of anything from custody, accounting, administration, creation and issuance of baskets and order taking for ETFs globally. You’re a market maker?

McCarthy: Yes. Through our capital markets division, we’re an authorized participant and a market maker as well for ETFs. That function is primarily focused on the U.S. market, where our asset-servicing back office is. But we are global.

And then through our Pershing business, we touch ETFs in a variety of different ways as well. Are you familiar with Pershing? Yes.

McCarthy: So we act as a custodian obviously through the Pershing audience [advisors] that hold ETFs, but we also provide access to ETFs, and that's through some of our platform; for example, our no-transaction-fee ETF platform that was launched in July 2017. And then through areas like our Lockwood, which is our registered investment advisory business, we use and also create discretionary models that use ETFs. Are you an ETF strategist, or do you actually employ advisors in that division?

McCarthy: Kind of both, through a variety of different products and services. We offer third-party models to the Pershing client base that use ETFs for asset allocation. We also—through Pershing and through Lockwood—create discretionary models as well that also use ETFs and asset allocation. What kind of assets are under those models?

McCarthy: Across the Pershing client base, at the end of 2017, ETF positions were roughly $130 billion. The last part of our ecosystem is through our investment management arm. We act as a subadvisor currently on ETFs. And we also have passive strategies and index strategies. Who do you subadvise ETFs for?

McCarthy: The largest is WisdomTree. Mellon Capital is the subadvisor across WisdomTree's family of ETFs. That’s the largest single client. Those products don't carry the BNY Mellon brand, but WisdomTree has been sourcing that subadvisory function to BNY Mellon.

Our goal is to keep on thinking of ways to bring thought leadership and promotion of ETFs to the global market. We think it's important to support the industry and also help to figure out ways we can help promote our clients' investment products. Let’s talk briefly about the webinar on Wednesday of this week. First Trust and Goldman Sachs are presenting along with BNY Mellon. Would you like to frame the webinar for readers?

McCarthy: First, both are clients of ours. And second, we've thought of a list of different topics in the market that we think are good to cover from a discussion standpoint. And as it relates to fixed income, both Goldman and First Trust are experts in that space.

We also think it's a good time to talk about fixed income given where the market is from a product perspective, where the market is just turning, and there's cyclical equity and fixed-income balance in the continued evolution of fixed income.

We just talked about the ways that we touch the ETF ecosystem and value chain, and one of our premier goals—especially since I joined less than two years ago—is to make sure the market views us as a real ETF partner capable of providing a full solution to the asset management community.

And because of all the products and services I went through across our business lines, we think we’re unique in that aspect, where we provide access, we provide liquidity by being an AP, a market maker. We provide investor access through Pershing, through our wealth management to all these products.

Drew Voros has nearly 30 years' experience in financial journalism. He was a longtime business editor for the Oakland Tribune and sister papers of the Bay Area News Group, and finance writer for the Hollywood trade publication Variety. Voros' past roles have also included editor-in-chief at and ETF Report.