WEBVTT - Meet One of ETF’s Founding Fathers 0:00:05.519 --> 0:00:13.399 Welcome to Trilliance. I'm Joel Weber and I'm Eric bell Chnus. Eric. 0:00:13.480 --> 0:00:18.400 Later this month nine, technically the e t F first 0:00:18.400 --> 0:00:22.000 started trading, and the history of the e t F 0:00:22.120 --> 0:00:23.759 is actually something that you and I know a little 0:00:23.760 --> 0:00:26.880 bit about. The first et F out of the gate 0:00:27.120 --> 0:00:30.880 was Spider sp Y, and we've talked to a lot 0:00:30.880 --> 0:00:33.479 of people about the history of the e t F, 0:00:33.720 --> 0:00:36.040 but there was one person that we actually haven't had 0:00:36.040 --> 0:00:37.839 a chance to ever talk to, and we got him 0:00:37.840 --> 0:00:41.519 for today's episode. Who is he? Jay Baker Um and 0:00:41.600 --> 0:00:43.440 Jay Baker And he can correct me if I'm wrong, 0:00:43.479 --> 0:00:45.800 but I would call him a founding father of the 0:00:45.800 --> 0:00:48.400 e t F world. He worked with Nate Most and 0:00:48.400 --> 0:00:51.000 Steve Bloom who were at the American Stock Exchange and 0:00:51.040 --> 0:00:53.720 that's where the that's where the idea was formed. And 0:00:53.760 --> 0:00:56.240 it's a fascinating story because m X was the third 0:00:56.280 --> 0:01:00.160 place behind Nastacin and Nicey, and they were looking for 0:01:00.280 --> 0:01:02.680 something to get volume, and so they were like the 0:01:02.800 --> 0:01:05.600 story of UM, this sort of down and out exchange 0:01:05.640 --> 0:01:08.679 looking to get something going and UM they weren't getting 0:01:08.720 --> 0:01:11.480 good listings and so they side just create their own thing, 0:01:11.959 --> 0:01:15.240 you know how necessity is the mother of innovation. Uh, 0:01:15.360 --> 0:01:17.200 this is a great case of that, and so J 0:01:17.400 --> 0:01:19.959 I believe, was that am X and was tasked with 0:01:20.360 --> 0:01:22.440 coming up with a marketing plan for this new thing. 0:01:23.000 --> 0:01:26.520 UM called SPIDER, which stands for S ANDP Depository receipts 0:01:27.000 --> 0:01:30.119 and today SPY. Just to bring you up to date, 0:01:30.240 --> 0:01:33.200 is three seventy two billion dollars. That's the biggest et 0:01:33.360 --> 0:01:35.640 F in the world. It also trades the most of 0:01:35.720 --> 0:01:38.920 any E t F. UM usually trades more than the 0:01:38.959 --> 0:01:41.959 next two or three stocks combined. So it is a monster. 0:01:42.080 --> 0:01:45.000 It's like a It's created a whole ecosystem around it. 0:01:45.360 --> 0:01:49.800 Can't say enough, can't really overstate how big of a 0:01:49.840 --> 0:01:52.640 success and hit this one E t F was. And 0:01:52.680 --> 0:01:55.560 as was said in a book, I wrote that they 0:01:56.000 --> 0:01:59.440 started out making a product but ended up creating an industry. 0:02:00.040 --> 0:02:02.760 And so Jay was right there in the early days. 0:02:02.800 --> 0:02:05.120 It's gonna be fascinating to hear him kind of go 0:02:05.200 --> 0:02:09.519 through some of those, uh early memories and moments. Also 0:02:09.600 --> 0:02:13.960 joining us for this episode Katie Greifield, reporter with Bloomberg 0:02:14.000 --> 0:02:17.480 News and a frequent guest on Trillions, as well as 0:02:17.520 --> 0:02:22.320 of course Jay Baker, who's the founding member of Exchange 0:02:22.360 --> 0:02:25.440 Treated Concepts, and he's also a founding father of the 0:02:25.480 --> 0:02:27.840 e t F. And we should also just mention that 0:02:27.880 --> 0:02:30.200 we're going to re release something that Eric and I 0:02:30.320 --> 0:02:32.120 made a number of years ago called the e t 0:02:32.280 --> 0:02:36.200 F Story, which will probably come up during the conversation today, 0:02:36.440 --> 0:02:39.400 but it has a number of really interesting interviews with 0:02:39.520 --> 0:02:42.240 key people who helped create the e t F, that 0:02:42.320 --> 0:02:45.880 first e t F Spider Spy, as well as the 0:02:45.960 --> 0:02:52.359 industry that came about afterwards. This time on Trillions founding 0:02:52.400 --> 0:02:57.040 father J Baker, J. Katie, Welcome to Trillions, Thank you 0:02:57.120 --> 0:03:00.959 very much. Okay, Jay, let's Red and the Clock. You 0:03:01.440 --> 0:03:04.639 were at the American Stock Exchange in the late eighties 0:03:05.480 --> 0:03:08.920 for students of history about the E t F. The 0:03:09.000 --> 0:03:12.520 e t F was basically incepted in a white paper 0:03:12.639 --> 0:03:17.240 about Black Monday that the SEC put together. UM and 0:03:17.560 --> 0:03:21.040 there were two characters that UM Eric mentioned there, Nate 0:03:21.080 --> 0:03:25.320 Most and Stephen Bloom, who basically read that report, found 0:03:25.320 --> 0:03:29.080 a passage in it and almost reversed engineered something that 0:03:29.360 --> 0:03:32.920 was requested by the SEC. So when did you first 0:03:33.200 --> 0:03:37.560 hear about what they were working on? Okay, so let 0:03:37.560 --> 0:03:41.960 me start with you had portfolio insurance that didn't work 0:03:42.040 --> 0:03:46.119 well on on that particular day. And what that led 0:03:46.160 --> 0:03:48.280 to next that the American Stock Exchange there was a 0:03:48.360 --> 0:03:53.560 filing in for IPS Equity Index participations, and believe it 0:03:53.640 --> 0:03:56.080 or not, this product was actually launched. It was basically 0:03:56.520 --> 0:03:59.520 like the Spider, but it was based on cash. That 0:03:59.600 --> 0:04:03.160 product did gain some attention. There were people trading it, 0:04:03.520 --> 0:04:07.040 and the Chicago Mercantile sued the AMAS and they said, 0:04:07.040 --> 0:04:10.800 it's a futures contract. Now there were differences in this product. 0:04:10.800 --> 0:04:13.480 First of all, it's traded on a stock exchange. Futures 0:04:13.520 --> 0:04:18.039 have a duration. The IPS Equity inex participations did not. 0:04:18.560 --> 0:04:22.359 You could buy it on UH margin and the margins 0:04:22.360 --> 0:04:25.479 and futures are much less. So nonetheless, the Chicago Marks 0:04:25.520 --> 0:04:28.000 sued and they won the lawsuit. So next thing you know, 0:04:28.600 --> 0:04:31.200 I was calling up firms and saying, look, the IPS 0:04:31.520 --> 0:04:33.760 are going to stop trading on such and such a 0:04:33.880 --> 0:04:37.919 day after that, and once again Nate Nate, Nate Most 0:04:37.960 --> 0:04:41.000 and Steve Bloom were involved with that. But it's exactly 0:04:41.040 --> 0:04:44.400 what you mentioned before, Eric, that the American Stock Exchange 0:04:44.440 --> 0:04:47.039 would try to get the large listening. Starbucks and IBM 0:04:47.080 --> 0:04:49.920 went to the New York very very difficult Washington posters 0:04:49.960 --> 0:04:51.560 at the m X. There a bunch of oil and 0:04:51.600 --> 0:04:55.080 gas companies, but difficult to get listenings at them. So 0:04:55.200 --> 0:04:59.080 this really the IPPs part of this. But Spider, Steve 0:04:59.160 --> 0:05:01.800 Bloom and they Most got together and we're trying to 0:05:01.839 --> 0:05:04.880 figure out how you could create a product that was 0:05:04.920 --> 0:05:08.320 physically backed. Couldn't do it uncashed were sued that was 0:05:08.400 --> 0:05:11.719 backed by the actual securities. So Nate Most had a 0:05:11.720 --> 0:05:14.360 background in commodity, so he was used to golden silver 0:05:14.520 --> 0:05:18.600 and the commodities being weared house in in a warehouse. 0:05:18.640 --> 0:05:20.040 So he's trying to figure out how do you wear 0:05:20.120 --> 0:05:23.559 house five hundred stocks. So they got together with State 0:05:23.600 --> 0:05:26.880 Street Bank with s l K, which was a lead 0:05:26.960 --> 0:05:31.280 market maker. UH. Katherine Moriority was part of the legal 0:05:31.320 --> 0:05:34.680 team and the all brainstorm. And when I talked about 0:05:34.720 --> 0:05:37.159 some of the people that were involved as in Nate Most, 0:05:37.200 --> 0:05:40.080 it was Steve Bloom, no doubt about it, Jim Ross, 0:05:40.560 --> 0:05:44.960 Kathy Cucolo, Glenn Francis, all involved with the plumbing of 0:05:45.000 --> 0:05:48.200 the Spider. UH. There was a guy named Gary Eisenrachet 0:05:48.240 --> 0:05:51.719 spear leads and Kellogg. He was very instrumental and in 0:05:51.880 --> 0:05:55.720 helping out and getting the trading going. And Kathleen Moriarity 0:05:55.920 --> 0:05:58.200 seemed to be most of the time the key lawyer 0:05:58.760 --> 0:06:02.080 uh for the Spider. Now, remember it was a unit 0:06:02.160 --> 0:06:06.599 investment trust, so it was it had no board. One 0:06:06.640 --> 0:06:08.839 of the reasons it was a unit investment trust is 0:06:08.880 --> 0:06:12.719 you have no board. If the product had failed, you 0:06:12.760 --> 0:06:16.599 didn't have to continue to pay several board members. The 0:06:16.720 --> 0:06:20.920 disadvantage of a uni investment trust is you cannot loan 0:06:20.960 --> 0:06:23.719 out any of the securities for stock loan. It's actually 0:06:23.720 --> 0:06:26.800 a more conservative structure. But that was one of the 0:06:26.920 --> 0:06:30.440 motivations for keeping it as a unit investment trust, which 0:06:30.480 --> 0:06:34.960 it still is uh uh to this day. So the 0:06:35.320 --> 0:06:38.960 product um also was helped a lot by State Street 0:06:39.000 --> 0:06:42.359 Bank being involved with it. There was tremendous credibility because 0:06:42.360 --> 0:06:45.520 State Street decided to be the custodian. The amics spoke 0:06:45.560 --> 0:06:48.479 with a couple of large firms and and State Street 0:06:48.560 --> 0:06:51.800 was the one that really wanted to be the custodian 0:06:52.320 --> 0:06:56.560 for this product. So the product started trading. And I'll 0:06:56.640 --> 0:06:59.880 bring up a story where uh one of my colleagues 0:07:00.080 --> 0:07:03.159 called a block trader at a firm and said hey, listen, 0:07:03.200 --> 0:07:05.159 if you trade a bunch of spiders, I'll give you 0:07:05.160 --> 0:07:07.640 a spiders hat. And on day one, if you notice, 0:07:07.680 --> 0:07:09.479 there was a million shairs traded, So there were a 0:07:09.480 --> 0:07:13.280 couple of prints of five hundred thousand chairs UM that 0:07:13.360 --> 0:07:16.400 were done because somebody was getting a spider hat. So 0:07:16.800 --> 0:07:19.440 after that day one was a tremendous you know, there 0:07:19.440 --> 0:07:21.680 there was there was a lot of trading on the product, 0:07:22.200 --> 0:07:26.480 but as time went on, the trading sort of got 0:07:26.560 --> 0:07:31.240 much lower and and by March April May there was 0:07:31.280 --> 0:07:35.760 one particular day where it traded seventeen thousand, five hundred shairs. 0:07:35.800 --> 0:07:42.320 And what happened was myself, UM and Steve Bloom were 0:07:42.680 --> 0:07:47.520 called to Ivers Riley. Ivers Riley was the senior executive 0:07:48.080 --> 0:07:51.360 vice president at the American Stock Exchange. He mysteriously called 0:07:51.440 --> 0:07:53.600 us up to his office and he brought brought us 0:07:53.640 --> 0:07:57.240 in and he said, listen, I want you too to 0:07:57.320 --> 0:08:01.040 get together come up with an institutional marketing plan for 0:08:01.080 --> 0:08:03.880 the Spider, and I want you to get two million 0:08:03.920 --> 0:08:05.680 dollars in the Spider by the end of the year. 0:08:06.000 --> 0:08:10.640 This was probably in I don't know, May, late April 0:08:10.760 --> 0:08:12.920 something like that, And he said, you're gonna have a 0:08:12.920 --> 0:08:15.760 report directly to me. I want I want you guys 0:08:15.800 --> 0:08:19.920 to come in every two weeks and uh um speak 0:08:19.920 --> 0:08:22.560 to me about about the progress that you're making. So 0:08:22.800 --> 0:08:25.360 Steve and I basically got in touch with all the 0:08:25.360 --> 0:08:28.559 block trading desks on Wall Street, Goldman, Sachs, Deutsche Bank, 0:08:29.240 --> 0:08:31.920 I think Kid or Peabody might have been around back then, 0:08:32.120 --> 0:08:34.360 City Bank. And we went to all these firms and 0:08:34.400 --> 0:08:37.800 spoke to them, and you know, there was interest. There 0:08:37.840 --> 0:08:40.720 was interest, but it was a little bit of a 0:08:40.720 --> 0:08:44.720 shrug of the shoulders. So we kept on pursuing, going 0:08:44.800 --> 0:08:48.520 to a lot of these large UH trading firms. And 0:08:48.679 --> 0:08:52.240 at one point I called a the head the West 0:08:52.280 --> 0:08:57.280 Coast senior mutual fund sales manager about the spider and 0:08:57.360 --> 0:09:00.160 I said, uh, listen, have you heard about the spy. Later, 0:09:00.720 --> 0:09:02.760 and we had to make these calls at the American 0:09:02.840 --> 0:09:04.959 Stocks Change. Every time there's a new option, you had 0:09:04.960 --> 0:09:07.800 to call the different broker dealers. They all shrugged their shoulders, 0:09:07.840 --> 0:09:10.960 said thanks. So I made a call this senior person 0:09:11.360 --> 0:09:13.240 at a large broker dealer and they said, look, I'm 0:09:13.280 --> 0:09:15.440 calling him about the spider. And he goes, hold on, 0:09:16.480 --> 0:09:20.680 he goes, I love the spider. I owned the spider 0:09:21.800 --> 0:09:24.640 and you were never ever, ever going to get in 0:09:24.720 --> 0:09:28.559 our office again. And by the way, I hope you failed. 0:09:29.679 --> 0:09:33.160 Huge slap in the face. This this was the Will 0:09:33.200 --> 0:09:36.040 Smith Chris Rock point in my life, you know. Just 0:09:36.200 --> 0:09:39.600 I was like, whoa, I mean, um, I've made a 0:09:39.600 --> 0:09:42.319 lot of calls on behalf of the ammys and nobody 0:09:42.400 --> 0:09:45.080 had ever had, you know, such a violent reaction. But 0:09:45.160 --> 0:09:48.240 the fact of the matter is this particular firm had 0:09:48.320 --> 0:09:52.880 an SMP UH product that was eighty or ninety basis 0:09:52.920 --> 0:09:56.520 points set up as a mutual fund. So that was 0:09:56.559 --> 0:09:58.480 the day as far as I'm concerned. That was the 0:09:58.480 --> 0:10:02.440 turning point, the hostility of that phone call. I turned 0:10:02.440 --> 0:10:05.280 to Steve and I said, this isn't be successful because 0:10:05.360 --> 0:10:07.080 we never get a reaction like that. It was a 0:10:07.160 --> 0:10:10.640 threatening product because many many different firms at SMP five 0:10:11.080 --> 0:10:14.079 funds internal that were much more than nine and a 0:10:14.120 --> 0:10:18.280 half basis points uh, which was where the spider was at. So, 0:10:18.559 --> 0:10:20.280 believe it or not, even though it was a slap 0:10:20.320 --> 0:10:21.960 in the face, it was a great slap in the 0:10:21.960 --> 0:10:24.640 face to me. It gave me confidence that this product 0:10:24.720 --> 0:10:29.040 was gonna uh do do well. So then what we 0:10:29.080 --> 0:10:32.280 did was we continued going to these different firms and 0:10:32.320 --> 0:10:34.400 one of them we went to his die with Securities 0:10:35.040 --> 0:10:38.040 and the individual that we were speaking to his name 0:10:38.120 --> 0:10:41.120 Jim Phillips, and he ran a group of maybe six 0:10:41.200 --> 0:10:45.960 or seven program traders Index arbitrjurs and he was interested 0:10:46.080 --> 0:10:48.920 in in the Spider. Now, I'm I don't want to 0:10:48.960 --> 0:10:51.600 make this more complex than it should be, but there 0:10:51.800 --> 0:10:54.640 was another product out at this point. It was called 0:10:54.679 --> 0:10:59.079 the super Trust. So the MX as super Trust had 0:10:59.440 --> 0:11:03.959 six for parts to it money market SMP with a 0:11:04.000 --> 0:11:07.200 put option covered call. But the one they did have 0:11:07.320 --> 0:11:09.840 one piece that was similar to the Spider, I would 0:11:09.840 --> 0:11:12.959 say almost identical. The price I think was much higher. 0:11:13.360 --> 0:11:16.320 It was a little bit clunky because I think to 0:11:16.360 --> 0:11:19.320 buy ten shares that was around lot. But what was 0:11:19.400 --> 0:11:22.920 happening with super Trust was the other pieces weren't going particular, 0:11:23.200 --> 0:11:25.360 weren't trading a lot, but that piece was trading well. 0:11:25.880 --> 0:11:28.640 So as I was talking, when we spoke with Jim 0:11:28.679 --> 0:11:31.160 Phillips at DIIWA, he had a million questions for us. 0:11:31.160 --> 0:11:33.440 So Steve and I were answering all these questions about 0:11:33.440 --> 0:11:39.160 the creation, redemption process, the flow process, and at one 0:11:39.240 --> 0:11:44.800 point and the super trust UH product launched in November. 0:11:46.520 --> 0:11:50.920 The Spider launched in late January, so they had a 0:11:50.920 --> 0:11:53.560 three month head start. They had a billion dollars going 0:11:53.600 --> 0:11:56.040 into it, and subscriptions not in that product, but I 0:11:56.040 --> 0:11:58.840 think all the products, and of course the Spider. You know, 0:11:58.880 --> 0:12:02.160 the Spider came out at party five. Because yes, the 0:12:02.080 --> 0:12:04.839 the SMP was at four fifty. The average price of 0:12:04.880 --> 0:12:07.480 a stock in the New York stock exchanged around forty dollars. 0:12:07.679 --> 0:12:09.600 They use a devisor of ten to get it to 0:12:09.640 --> 0:12:13.320 open at forty five. When the Spiders started trading on 0:12:13.400 --> 0:12:16.800 January twenty nine, there were three creation units. The creation 0:12:16.880 --> 0:12:20.840 units were fifty thousand shares and hundred and fifty thousand 0:12:20.840 --> 0:12:23.280 shairs who were created times a price of forty five. 0:12:23.480 --> 0:12:26.400 That's six point seven million dollars was in the Spider 0:12:26.840 --> 0:12:30.600 on day one. And now you have three hundred seventy 0:12:30.600 --> 0:12:34.280 billion in the Spiders, so many creations since then. But 0:12:34.640 --> 0:12:39.280 what happened was we kept on badgering Diwa, We kept 0:12:39.280 --> 0:12:42.400 on going back and answering questions and answering questions, and 0:12:42.600 --> 0:12:45.600 one day was and this is while the volume was 0:12:45.679 --> 0:12:49.120 somewhat tepid. Remember the opening day trade was just a trade, 0:12:49.200 --> 0:12:52.520 five hundred thousand, five hundred thousands, No creations, right, you 0:12:52.520 --> 0:12:56.440 didn't see any creations. So uh so we kept going 0:12:56.480 --> 0:12:59.920 back to Diawa, and finally one day, after we had 0:13:00.080 --> 0:13:04.000 address their questions, that two things happened. Um they mentioned 0:13:04.080 --> 0:13:07.600 to me, he mentioned that Supertrust had been in there, 0:13:07.640 --> 0:13:10.679 and then he said just very casually, you know, they 0:13:10.720 --> 0:13:12.880 couldn't answer a lot of questions, and I was like, 0:13:14.080 --> 0:13:18.040 I almost fell over. Didn't say anything, just said nothing, 0:13:18.160 --> 0:13:21.240 just nodded. So what what? What? What they did at 0:13:21.240 --> 0:13:23.440 Die with that day? They literally put in a creation 0:13:23.520 --> 0:13:25.560 for I think about a hundred million that day, I 0:13:25.559 --> 0:13:28.319 mean went through the process of doing it, and then 0:13:28.360 --> 0:13:30.720 I think they created another hundred millions, So the Spider 0:13:30.720 --> 0:13:33.840 Trust jumped up a couple of hundred million. Then from 0:13:33.880 --> 0:13:37.520 that day on or shortly there after, Spider really never 0:13:37.679 --> 0:13:40.280 traded less than a hundred thousand shares a day. In 0:13:41.400 --> 0:13:43.840 I think the whole year they traded a hundred million shares, 0:13:43.880 --> 0:13:46.800 which is four hundred thousand shares a day. Now, the 0:13:46.880 --> 0:13:50.160 interesting thing was why did he do this? Nobody else 0:13:50.559 --> 0:13:54.440 was seemed to be particularly interested. The reason that Die 0:13:54.440 --> 0:13:57.079 with Securities created a couple of hundred million dollars of 0:13:57.120 --> 0:13:59.439 the spiders. Is there were people that wanted to short 0:13:59.480 --> 0:14:03.559 the spider. There weren't enough spiders around to borrow them 0:14:03.600 --> 0:14:06.040 to short it. So what they did is we called 0:14:06.080 --> 0:14:09.760 it create to loan. They created two hundred million in 0:14:09.800 --> 0:14:13.400 a couple of tranches of the spider. And meanwhile, remember 0:14:13.400 --> 0:14:17.040 their shorting SMP futures against this position. So they're long 0:14:17.120 --> 0:14:19.440 two hundred million dollars of the spider, their short two 0:14:19.800 --> 0:14:22.640 million dollars of the futures. So whether the market went 0:14:22.720 --> 0:14:25.960 up four hundred points or dropped five d their risk 0:14:26.160 --> 0:14:30.760 was ameliorated. And they kept that position on for probably 0:14:31.240 --> 0:14:33.280 nine months to ten months, and they were earning a 0:14:33.280 --> 0:14:36.080 return on it back then short term rates I think 0:14:36.160 --> 0:14:40.600 one year treasuries, two year, three something like that. So 0:14:40.800 --> 0:14:43.840 that to me was a huge turning point. So finally 0:14:44.000 --> 0:14:47.280 I'll mention this as well that when those trades were done, 0:14:47.760 --> 0:14:51.760 what you saw was the trades were printing away from 0:14:51.920 --> 0:14:54.840 the exchange. So what people were seeing was and when 0:14:54.840 --> 0:14:58.560 I say people Morgan Stanley, JP, Morgan Goldman sects are 0:14:58.560 --> 0:15:01.480 seeing a million, then a couple of days later a million, 0:15:01.840 --> 0:15:04.640 And what happens when they see that, oh gosh, that's 0:15:04.640 --> 0:15:07.200 that's that's forty million dollars? Who is it? Do we 0:15:07.280 --> 0:15:10.320 get the call? What's going on? What's and then they 0:15:10.320 --> 0:15:12.880 saw the creation. So what you all of suddenly was 0:15:13.000 --> 0:15:16.680 not only was somebody trading that that share amount, but 0:15:16.760 --> 0:15:20.760 you're seeing assets going into the fund. So it alerted people, hey, 0:15:20.760 --> 0:15:23.440 there's something going on. Look we have a product right 0:15:23.440 --> 0:15:26.000 now at etc. That when they come in they trade 0:15:26.040 --> 0:15:29.080 millions of shares. All of the big block traders are 0:15:29.080 --> 0:15:31.320 aware of it. All of them are interested in that 0:15:31.400 --> 0:15:34.120 type of flower. That's great. That's the whole story. And 0:15:34.200 --> 0:15:36.920 die way, I think is is fascinating that sometimes you 0:15:36.920 --> 0:15:38.920 just need someone to believe in you, you know when 0:15:39.080 --> 0:15:43.000 when early believer, early adopter. What you're talking about reminds 0:15:43.000 --> 0:15:45.520 me of when any new E t F launches. Sometimes, 0:15:45.560 --> 0:15:48.320 like an E t F, like jets, kind of hung 0:15:48.320 --> 0:15:50.080 in oblivion for a couple of years and then it 0:15:50.160 --> 0:15:52.600 got a couple of trades, had a nice little run 0:15:52.600 --> 0:15:54.880 in performance, and then boom, it starts trading a hundred 0:15:54.880 --> 0:15:56.800 million dollars a day, and then all of a sudden 0:15:56.800 --> 0:15:59.640 people are curious about it. So it's it's interesting that 0:15:59.720 --> 0:16:02.000 set a tone for how every launch I think goes 0:16:02.040 --> 0:16:13.720 after that. I think also what you brought up that 0:16:13.800 --> 0:16:17.600 was interesting was the fee. I was just exploring the 0:16:17.640 --> 0:16:21.360 whole world of Vanguard in a book, and the idea 0:16:21.400 --> 0:16:24.160 of the fee being used to match Vanguards five hundred 0:16:24.200 --> 0:16:26.440 funds that way you could compete head to head with 0:16:26.520 --> 0:16:31.000 Vanguard turned out to be crucial because then obviously retail 0:16:31.040 --> 0:16:33.840 investors could use this, but at ninety bits it might 0:16:33.880 --> 0:16:37.600 not take over in the retail market. Did you, when 0:16:37.600 --> 0:16:41.040 you were selling it think of it more as a 0:16:41.120 --> 0:16:44.560 mutual fund that happens to trade, or a futures contract. 0:16:44.600 --> 0:16:47.840 It's actually physically back with the thocks behind. No, no, no, no, 0:16:48.040 --> 0:16:50.840 we didn't sell it ever as a futures contract. As 0:16:50.840 --> 0:16:53.680 a matter of fact, Um, well, once again I'm not 0:16:53.800 --> 0:16:57.520 using names. One of my friends was telling somebody there 0:16:57.520 --> 0:17:00.240 were country baskets. I think they had some thing that 0:17:00.280 --> 0:17:02.920 was similar to an SMP five fund. It wasn't exactly, 0:17:03.400 --> 0:17:07.320 but that this individual was telling people it was a 0:17:07.359 --> 0:17:09.920 futures contract, and that was a no no. I called 0:17:10.000 --> 0:17:12.920 him up and and had some choice words with him. 0:17:13.160 --> 0:17:16.000 Don't start this. It's not a future sy it's backed 0:17:16.000 --> 0:17:18.879 by physical stock. We always pushed the fact that it 0:17:18.920 --> 0:17:21.399 was back I love I love the futures. They it 0:17:21.520 --> 0:17:24.920 was think about this product. You had futures that traded actively, 0:17:24.920 --> 0:17:27.639 you had options on futures, and now you had this 0:17:27.720 --> 0:17:31.160 security back by the SMP five funder. They all together 0:17:32.080 --> 0:17:37.919 two plus two equal to AID. So yeah, now what 0:17:37.960 --> 0:17:42.159 you're getting at here is this is was registered and 0:17:42.400 --> 0:17:44.600 Spy took like four years to get through the SEC. 0:17:44.760 --> 0:17:46.720 So it stat with the SEC for like four years, 0:17:46.760 --> 0:17:49.240 which is a long time. Yes, And I think that 0:17:49.359 --> 0:17:52.200 to your point, that's why I would also be like, no, 0:17:52.320 --> 0:17:55.560 this is not a derivative. This is an actual mutual 0:17:55.600 --> 0:17:58.520 fund that passed the same regulation UM as A as 0:17:58.560 --> 0:18:00.440 A as A, I don't know a t real price 0:18:00.520 --> 0:18:03.800 or a fidelity mutual fund um. And then this brings 0:18:03.840 --> 0:18:07.680 up another question. While Spy is sitting in regulatory uh 0:18:07.840 --> 0:18:10.879 with the SEC, Canada comes out and launches the TIPS. 0:18:11.560 --> 0:18:14.800 But according to my interview with Bloom, he says that 0:18:14.840 --> 0:18:18.679 the Toronto people came down and just Nate most was 0:18:18.720 --> 0:18:22.040 just cool and shared information with them. They took the 0:18:22.080 --> 0:18:24.959 idea to Canada and just got through the regulation quicker. 0:18:25.280 --> 0:18:27.760 And now Canada goes around saying they were out first. 0:18:28.119 --> 0:18:31.680 I try to put this other side to this story 0:18:31.720 --> 0:18:33.520 out there. But what's your take on that whole thing 0:18:33.560 --> 0:18:36.959 with Canada and the US. Oh? Boy, um, I'm not 0:18:37.840 --> 0:18:41.080 I don't. I don't think I was involved with those conversations, 0:18:41.119 --> 0:18:45.680 So I can't. I can't actually say that that that's 0:18:45.680 --> 0:18:48.240 what happened. That's a little bit unclear to me because 0:18:48.240 --> 0:18:51.000 I have heard for years that the Canadians said that, 0:18:51.200 --> 0:18:53.840 uh uh, you know that they actually came out with 0:18:53.840 --> 0:18:55.800 the idea first. And I think you're right. It was 0:18:55.840 --> 0:19:00.160 called tips um. But what I will say is one 0:19:00.160 --> 0:19:02.159 of the and I think Kathleen Moriarty one of the 0:19:02.200 --> 0:19:04.640 things she mentioned about Spider, Remember this is the first 0:19:04.680 --> 0:19:07.040 time something like this was done. It was sort of 0:19:07.080 --> 0:19:10.639 a closed end fund, open ended fund, right, So I 0:19:10.640 --> 0:19:13.359 remember she was saying that when it went to the SEC, 0:19:14.359 --> 0:19:17.080 it it went to almost every division of the FCC, 0:19:17.200 --> 0:19:21.920 investment management, trading and markets, economic and risk analysis, and 0:19:22.680 --> 0:19:24.679 who knows, it might have even gone to enforcement. I 0:19:24.680 --> 0:19:26.919 don't know, but that was one of the reasons that 0:19:27.000 --> 0:19:29.520 it took so long. Clearly that was another reason why 0:19:29.560 --> 0:19:33.040 it took Supertrust two years to get their exemptive relief 0:19:33.080 --> 0:19:36.960 because there's was a more complicated structure. Jay, I want 0:19:36.960 --> 0:19:40.399 to go back to your slap in the face moment 0:19:40.520 --> 0:19:43.520 that uh what is it? Will Smith Chris Rock moment, 0:19:43.640 --> 0:19:46.159 because this is something I wonder about, especially with like 0:19:46.320 --> 0:19:49.159 very popular songs like did the band did the artists 0:19:49.240 --> 0:19:51.280 know that it was going to be such a hit? 0:19:51.320 --> 0:19:52.760 And you said that you knew that it was going 0:19:52.800 --> 0:19:56.600 to be successful. But I mean when when in those 0:19:56.640 --> 0:19:59.920 four years when you when Spy was still in development, 0:20:00.080 --> 0:20:02.919 I mean, did you have any inkling that you know, 0:20:03.000 --> 0:20:04.960 e t f s were really going to take off 0:20:05.000 --> 0:20:07.520 to the extent that they have that you know one 0:20:07.560 --> 0:20:12.280 day this would be in almost four hundred billion dollar product. Yeah, No, 0:20:12.560 --> 0:20:14.879 I don't. I don't think I had that. I I 0:20:15.080 --> 0:20:17.760 what I did know partially the reason I brought up 0:20:17.800 --> 0:20:21.000 the apps was people like the apps, and I thought, 0:20:21.040 --> 0:20:22.960 this is interesting. They like the apps. They've got a 0:20:23.040 --> 0:20:25.560 love of the spider that's actually backed by by the 0:20:25.600 --> 0:20:29.200 physical And I thought, look, we were we were told 0:20:29.320 --> 0:20:31.600 we were ordered to get two hundred million dollars in 0:20:32.080 --> 0:20:33.960 that product. We didn't do a lot of thinking about. 0:20:34.000 --> 0:20:35.920 I mean, we came up with a marketing plan and 0:20:37.280 --> 0:20:44.560 ended up executing. When the volume let's say, averaging whatever, 0:20:44.560 --> 0:20:47.280 four dred thousand shares a day, it was crystal clear 0:20:47.320 --> 0:20:50.440 this was going to be a multibillion dollar product. How 0:20:50.440 --> 0:20:53.040 many billions, I don't know. And look, when you think 0:20:53.040 --> 0:20:56.159 about the American Stock Exchange, they created this product. It 0:20:56.240 --> 0:21:00.000 wasn't nastic and it wasn't the New York uh State Street, 0:21:00.040 --> 0:21:03.080 of course, is the trust they want. They were on 0:21:03.160 --> 0:21:07.800 the trust. But PDR Services is a sponsor, and the 0:21:07.880 --> 0:21:10.919 AMEX was PDR Services. They were sort of the steward 0:21:10.960 --> 0:21:13.919 of the product that had the ability to hire and 0:21:14.000 --> 0:21:18.760 fire a custodian right or a distributor. So and then 0:21:18.760 --> 0:21:20.480 it passed on to the New York Stock Exchange. You 0:21:20.520 --> 0:21:23.800 can look it up. What I think about is um 0:21:23.880 --> 0:21:27.240 the American Stock Exchange situation that as the years went 0:21:27.320 --> 0:21:30.160 by and as it was trading more and more, the 0:21:30.280 --> 0:21:33.840 AMEX market share of the volume at one point towards 0:21:33.840 --> 0:21:37.879 the end was less than one percent. You get a 0:21:37.920 --> 0:21:40.240 hundred million shares traded, they're not trading a million, they're 0:21:40.240 --> 0:21:42.879 trading four dred thousand shares. All it was trading on 0:21:42.920 --> 0:21:45.560 the different exchanges. So one of the things that I'm 0:21:45.600 --> 0:21:48.000 not we weren't. You've got to realize with the exchange, 0:21:48.000 --> 0:21:51.280 you're thinking about trading and exchange fees. But I was 0:21:51.840 --> 0:21:54.680 speaking with somebody this morning, and what would have been 0:21:54.760 --> 0:21:58.200 interesting is if the m X could have gotten two 0:21:58.200 --> 0:22:02.200 basis points in the spider two basis points on billion 0:22:02.240 --> 0:22:05.440 dollars is seventy five million dollars based on the assets 0:22:05.520 --> 0:22:08.160 that they have. Could that have been done? How could 0:22:08.240 --> 0:22:11.479 you do it? The exchanges are self regulated, the the 0:22:11.480 --> 0:22:14.000