As institutional investors continue to pile into ETFs, the role of the ETF market maker is assuming greater importance in order to ensure that best execution mandates are being fulfilled. That requires keeping in constant communication with buyers and sellers of ETFs.

“Regardless of the type of trade or asset class, we evaluate all avenues of execution to ensure our clients receive the best execution at the right price,” said Mohit “Mo” Bajaj, who has joined WallachBeth Capital as director of ETF and portfolio trading services. “We have a very consultative approach with our clients. It is important that we understand their objectives for any given trade. This allows us to have an open dialogue with them about the breadth of ETF products available to them and the various ways they can get into or out of any given product.”

Bajaj brings over 10 years of ETF principal market-making and global bank trading experience to agency-only brokerage specialist WallachBeth, most recently serving in a senior ETF facilitation role at Deutsche Bank. “Mo further strengthens our core capabilities and his wealth of ETF and portfolio trading expertise will help our clients navigate the increasingly complex and evolving ETF landscape,” said Michael Wallach, CEO of WallachBeth, which specializes in the execution of ETFs, closed-end funds, options, OTC derivatives and equities for leading institutional investors and financial intermediaries.

U.S.-listed exchange-traded funds attracted $188.4 billion in 2013, just shy of 2012’s record $190.1 billion, according to Morningstar. Those inflows represent a growth rate of about 14% of beginning assets compared with the projected growth of about 3% for long-term mutual funds. Strong inflows, combined with market appreciation, have allowed ETF assets to hit $1.7 trillion, or about 13% of long-term mutual fund and ETF industry assets.

SPDR S&P 500 (SPY), the largest ETF, attracted the greatest inflows in 2013 and brought assets to $174.8 billion. But SPY continues to slowly lose market share to both iShares Core S&P 500 (IVV) and Vanguard S&P 500 ETF (VOO).

ETF investors sold roughly $6.6 billion out of funds in the diversified emerging-markets category while mutual fund investors bought $39.0 billion. “ETFs such as Vanguard FTSE Emerging Markets (VWO) and iShares MSCI Emerging Markets (EEM) are heavily owned by institutions, at least 65% for each,” said Michael Rawson, ETF analyst at Morningstar. “In contrast, it is likely that the mutual funds are predominately owned by individual investors.”

Since ETFs track an underlying index, the ETF may trade at a premium or discount to what it’s really worth, Bajaj explained. Reasons for premiums or discounts include liquidity of the underlying securities, liquidity of the ETF itself, costs associated with executing the underlying names, etc.

“Trying to understand the true value of the ETF can be complex,” he said. “If you want to buy IBM, the price is what it is. But to understand the price of an ETF, you need to evaluate more factors than what the screen is showing you. To do this, we rely heavily on technology that requires constant evaluation and updating. The last thing you want is for pricing to be delayed, static or incorrect. We pride ourselves on not just being an order-taking broker — we strive to be a value-added partner to our clients, helping them navigate a complex ETF product landscape.”