IF.com: Is Barclays doing anything to minimize the trauma caused by some of the international funds - and some of the sector funds in the U.S. - based on the 25 percent, 5/25 limitations? Do you try to foresee where the index is going?

LK: What we try to do is use our experiences as a worldwide index manager to make intelligent trade-offs. There are a number of different approaches that one can take to dealing with the issue in the optimization or sampling process. And we do our best to try and make decisions to make them track the index as closely as possible. The reality is that it's not an ETF problem. If it's driven by SEC and IRS regulations, it would happen to any other fund product, mutual fund or otherwise. And that's inherent in the nature of the indexes.

IF.com: Where are iShares going in the future? Are you going to move into 16 more international regional funds, international size, value, growth sector funds? Anything like that?

LK: Sure. The angles that we'll be pursuing are, number one, to continue expansion of both domestic and international equity funds. There's a lot of demand out there for more products. We have announced the intention to launch the S&P Global 100, which will be traded on the New York Stock Exchange. And we'll be looking at more opportunities there for both domestic and international index funds, although none are filed as of yet. The next step in general product evolution is probably fixed income. I don't know if you're aware, but we're in the process of launching in Canada the first fixed income exchange-traded fund. So we have that going up there. Canada tends to lead the US in exchange-traded funds. It's a little known fact that the spreader was preceded by the Canadian products. Essentially the HIPs have been around since the late '80s, they're now part of our I-60. So they were first to market again with fixed income, but we would hope to bring up fixed income products in due course. And then the final step in the product evolution would be active funds.

IF.com: I was going to ask you about that.

LK: Both fixed income and active pose some unique challenges. Different, but unique from both an operational and regulatory perspective, and we're looking at that and we hope to be the first with funds out there. We now have 56 of the 69 funds in the US, and we consider ourselves a leader and we'd like to have the first ones out. But it's going to take a lot more work.

IF.com: What are the main obstacles in the actively traded ETFs?

LK: The biggest obstacle in active is pretty simple. With the normal exchange-traded fund, the way it maintains its value during the day is through the arbitrage mechanism. That requires you to post what securities are in the portfolio every day. Most active managers consider it a gross violation of their privacy to have to disclose twice a year what the holdings are. So the concept of posting the basket every day,of revealing what a fund is holding - it's unlikely to fly for most managers.

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