Market-making firms in the $13 trillion exchange-traded fund industry may come under strain amid a potential wave of new listings in 2026, with US regulators poised to allow asset managers to offer ETFs as share classes of mutual funds.
That’s the view of Valerie Grimba, director of global ETF strategy at RBC Capital Markets, which is one of the top-10 largest ETF market-makers. Specifically, market-makers don’t have unlimited capital to devote to trading ETFs intraday and seeding new fund launches, Grimba said. Should the introduction of dual-share classes in 2026 spur hundreds of new listings, as some industry watchers have called for, the market-making system could run into a bottleneck of sorts, she said.
“There are some finite resources in the system. One that’s very important is, of course, a balance sheet, or capital that is put up by market makers,” Grimba said on Bloomberg Television’s ETF IQ. “That is a finite resource that probably is going to be constrained if you see the number of ETFs grow.”
Anticipation is building for the first ETF share classes of mutual funds to launch early next year after the Securities and Exchange Commission gave Dimensional Fund Advisors formal approval to do so last month. Dozens of other firms are waiting for similar approval, including BlackRock Inc., Fidelity Investments and T. Rowe Price Group.
However, Grimba isn’t alone in her concerns about the burden that the dual-share class structure could place on the ETF ecosystem. Potential operational and market-structure challenges have kept issuers such as Capital Group away from filing for permission to use the fund blueprint, while Nasdaq Inc. is staffing up ahead of the potential deluge.
At the heart of the concerns is the fact that the ETF industry is served by a concentrated handful of market-makers. While there are more than 250 ETF issuers, there are only 15 market-making firms serving the industry, with the top five — Jane Street, Virtu, Susquehanna, Citadel and GTS — acting as lead market maker for more than 70% of ETFs, according to Bloomberg Intelligence.
Market-makers are going to prioritize working with the asset managers that they already have an economic relationship with, such as trading during index rebalances or partnering on derivative structures, Grimba said.
“Market makers are going to be more selective with the ETF issuers that they work with,” Grimba said. “We just want to make sure that even the smaller, more innovative ETF asset managers are able to come to market and not be hamstrung by us just working the with largest providers.”
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