McNabb also weighed in on the controversial issue of high-frequency trading, which has often caught ETFs in its path when arguments are made that the markets are "rigged" in favor of big institutions making large trades in sophisticated trading venue, such as dark pools.
McNabb took the line espoused by Vanguard Group founder Jack Bogle in recent interviews, saying high-frequency trading has had benefits for investors and the markets, even if more regulatory scrutiny is warranted.
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Bogle has often criticized ETFs when they are used as trading vehicles and has said they've helped to enable strategies, including high-frequency trading.
"The huge risk of a technology breakdown is out there," Bogle warned in a recent speech. Yet Bogle believes high-frequency trading is here to stay and that it has brought some benefits, including lower trading costs.
McNabb said at the ICI conference, "High-frequency trading needs to be more closely scrutinized ... but we caution people to not overreact." He noted that the equity market now has more than 50 trading venues and is decentralized. High-frequency trading is part of the market's "central nervous system," and McNabb said, "We don't believe it's rigged."
He noted that while a new regulation like SIFI designation would be a cost likely borne by shareholders, high-frequency trading is part of a market evolution that has reduced costs.
"Look at our index funds," McNabb said. "The cost of transactions have come down. We can measure it. Our tracking error has gotten better and better over time because the implicit [trading] costs are lower."