GF: Yes, and that's a serious issue. The other issue with the active products is turnover. Some people are talking about dealing with turnover through special baskets. The problem is that if you don't have enough trading and enough creation/redemption, the portfolio manager is eventually going to have to trade to reflect his or her view of the composition of the portfolio, and that's going to take away a lot of the tax efficiency of the vehicle. The transparency issue is going to be a problem. The manager is not going to want to disclose the composition of the portfolio every day because he doesn't want to have people front-running him. So those are all big disclosure issues.

The last issue that people are losing sight of is the tremendous popularity of ETFs. What it really comes down to is people being comfortable with the benchmark that's being used. For example, the Spider is as successful because people know that it's going to look and behave just like the S&P 500, so they can use it as a proxy for the investment.

The exchange-traded fund is a product that's going to be marketed to a niche crowd. At the end of the day, what makes the ETF such an attractive product is the fact that investors can use it for so many different applications. And that's what creates liquidity in the market. The minute you start fragmenting the market and defining it very finely, you're going to start to lose a lot of that trading liquidity.

JW: Any comments on the Australia fund you launched? I think you caught a lot of people by surprise.

GF: I think we did. We signed a memorandum of understanding with the Sydney Stock Exchange to launch a product next year and we've started working with them very diligently to get that product together. The Australian market is very mature and sophisticated, so we're very excited about launching a product there.

JW: Do you see State Street continuing to make a strong push on foreign-based ETFs?

GF: Absolutely. In fact, State Street was the first to launch a foreign-based ETF. The ETFs in Canada were actually the first ETFs in the world, and last year we launched the Hong Kong fund with $4.5 billion in assets. We believe we have the experience and the results to launch more international ETFs.

You'll see us be a bit more cautious in launching products that trade in the U.S. and invest offshore like the WEBS. Our philosophy here is that for a product to work as well, as the Spider does here or the Tracker in Hong Kong, it's important for the underlying stocks to trade at the same time as the ETF trades. That's really what closes the arbitrage loop. The minute you can't track the stock at the same time you trade the ETF, you create the opportunity for mispricing, and that's really going to take liquidity away from the product. It's a complicated product. I'm not saying it's a bad idea, but it's very difficult to manage, and it's going to create pricing gaps that are very difficult to explain.

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