Overview

In Part 2 of our ETF article series, we turn the discussion towards a successful ETF launch. Areas such as timeline, key milestones, and the seeding and listing process will be covered. Fund conversions will be a topic here too, an issue PINE receives questions on regularly. Understanding the intricacies of launching an ETF is essential for those considering this wrapper for their strategy, as it can have significant implications for the fund's long-term viability and investor interest.

Check out Part 1 ETF Basics of this series.

Launching an ETF

Bringing an exchange-traded fund (ETF) to market starts with a well-defined idea. Sponsors must first identify their fund's strategy, differentiator, and target market while determining whether the ETF structure is the appropriate vehicle. Some investment strategies are not well-suited for ETFs due to liquidity and diversification rules, complexities of intraday trading, ease of pricing and hedging, and the inability to restrict fund purchases or redemptions. Beyond the investment strategy itself, a compelling story is essential—who is the target audience, what makes the product unique, when it will launch, where it will be available, how investors can access it, and where the product may fit in a portfolio. Because the market is more saturated than years ago, launching a fund does not guarantee demand; a well-thought-out distribution plan is necessary. The adage of “build it and people will come” has never been a recipe for success. Issuers must consider how they will reach their target audience, whether through wholesalers, whose activity can be challenging to track in an ETF model, through a digital-first approach driven by content and outreach, or some other approach.

Selecting key partners is another critical step. Issuers must decide whether to create a standalone trust or launch the fund within a series trust, a choice that affects the selection of service providers. A series trust, or white label platform, often comes with pre-selected partners, though sponsors can introduce new providers with board approval. Essential service providers include a custodian, transfer agent, and administrator (often a single firm) to maintain assets and records; legal counsel to handle regulatory obligations and SEC interactions; a statutory distributor to monitor primary market activity, review and approve marketing material, and enter into agreements with Authorized Participants; an auditor to certify financial statements; and market makers to ensure liquidity in secondary markets. If forming a new trust or advisory firm, additional personnel may be needed to act as officers, or act as support for these roles.

The timeline for launching an ETF varies based on the chosen structure. A fund launched within a series trust can achieve SEC effectiveness in as little as 75 days after the initial filing, depending on regulatory comments. Creating a new trust typically takes longer, often four to six months or more. Key milestones include selecting partners and service providers, submitting the initial SEC filing, responding to regulatory feedback, preparing for operational readiness, and seeding and listing the fund.

Unlike traditional investment products, ETFs enter the market through a seeding event, ensuring initial liquidity upon listing. Seeding involves the creation of a block of shares that are placed on an exchange, allowing liquidity providers to post bid-ask spreads and facilitate trading. The process begins when the Lead Market Maker (“LMM”) places a creation order through its preferred clearing Authorized Participant (“AP”), or a large institution contracted with the distributor. In exchange for cash or in-kind securities from the AP, the fund issues new shares, which are then distributed to the LMM for the opening auction. Once listed, the ETF trades like common stock, with investors buying and selling shares amongst themselves through brokers. When demand exceeds supply, market makers create additional shares through an AP, increasing the number of outstanding shares. Conversely, when selling pressure arises, market makers redeem shares, reducing the total share count.

Some issuers choose to bring an ETF to market through a conversion of existing assets, transitioning a mutual fund, separately managed account (“SMA”), or other pooled investment into the ETF structure. The goal is for investors to transition seamlessly, holding ETF shares with an equivalent total value the day following conversion. These conversions can often be executed in a tax-efficient manner, though they are subject to regulatory considerations. Benefits of conversion include immediate scale and trading volume, favorable breakeven profitability, potential use of an established track record for marketing and distribution, and potential tax and liquidity advantages for investors.

Conclusion 

There are many ways to bring an ETF to market, but successful issuers typically follow a structured process. It all starts with an idea that seeks to fulfill investor demand in a way existing products do not. Careful selection of partners ensures a smooth launch and effective ongoing operations, culminating in a well-orchestrated seeding and listing event. However, launching the ETF is just the beginning—the real work lies in sustaining investor interest and growing assets under management.

Look out for Part 3 of this three-part ETF series in our Q2 2025 newsletter, where we will share our thoughts on what to consider when running an ETF. In the meantime, reach out to your PINE contact with any questions, and we can provide tailored insights and guidance based on your individual
situation.

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