Toronto-based financial technology startup Vexo Technology Solutions Corp. is launching a new, platform-agnostic system, ETFbahn, designed to allow mutual fund dealers and their financial advisors to gain widespread access to ETFs.
Notably, ETFbahn would make it possible for mutual fund dealers and their advisors to include ETFs in their clients’ portfolios without having to set up the necessary compliance and back-office infrastructure required.
“Unlike other solutions, where [dealers] have to convert to a different platform, it allows them to keep whatever platform they want, and plug and play with ours,” says Fotios Saratsiotis, president and founder of Vexo, previous director of product innovation with Fundserv Inc.
ETFbahn comes with a “compliance module” that monitors potential issues, assesses risk factors and alerts compliance officers to certain types of transactions, Saratsiotis says.
If there’s a limit order, for example, and what’s been entered is way off the mark, the system would flag that trade and identify the representative. This level of scrutiny would all be automated under Vexo’s “risk-engine” system.
“We’ve started talking to many dealers out there,” Saratsiotis says. “We’re trying to find the [Investment Industry Regulatory Organization of Canada-licensed (IIROC) securities] dealer that will give us the best execution in terms of price and access to ETF markets.”
In addition, ETFbahn has what Saratsiotis calls a “reconciliation” feature that allows it to process and treat ETFs as though they were mutual funds
“When trying to work with an IIROC dealer, all of that trading goes into an omnibus account, and reconciling that omnibus account with an individual account and dealer platform is a complex process,” he explains. “We have a way of giving you back information into your system the way you would normally receive it for mutual funds. … We’re making an ETF look [almost] like a mutual fund.”
Since the Mutual Fund Dealers Association (MFDA) granted its licensed advisors permission to sell ETFs last April — provided there’s a technological system in place to trade ETFs and ensure advisors fulfil certain proficiency requirements — adoption has been limited.
Vexo joins only a handful of firms — including Montreal-based Peak Investment Services and Mandeville Wealth Services of Burlington, Ont. — that have developed an avenue for MFDA-licensed advisors to buy into the ETF market.
“There will be a slow take-up in the early stages because there’s still education and proficiency [considerations],” Saratsiotis says, “but we see [adoption] increasing dramatically over the next couple of years.”
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