In the exchange-traded fund (ETF) business, there are rewards for being the first mover. Polaris, Taiwan's domestic ETF powerhouse, has plans to expand outward and become a regional player in Asia. It has already struck deals in China and Hong Kong, and is now eyeing Singapore and Thailand.

According to Julian Liu, Polaris' president and CEO in Taipei, the company is lining up a number of deals to import ETF products from around Asia. It is also looking to establish more partnerships with domestic houses in the region to help Polaris distribute its products. Either way, the deals are aimed at diversifying ETF offerings available to local investors.

In Hong Kong, the firm signed a deal with BOCI-Prudential in May 2008 to jointly develop cross-listing initiatives. A product has been in preparation for a year, and will be ready to go live in the third quarter of this year. Liu says Polaris is planning to use a feeder fund structure to import BOCI-Prudential's popular ETF linked to the CSI 300 index into Taiwan. The product will be a first, in that it genuinely offers A-share exposure in an ETF format to Taiwanese investors.

While, on paper, authorities in Hong Kong and Taipei have given the nod to cross-listing initiatives, in practice, there are still multiple technicalities preventing a straightforward cross-listing effort. These include issues of currency, execution of hedges on underlyings, fund administration, settlement cycle differences, and differences in market-making facilities between Taiwan and Hong Kong -- just to name a few.

The decision to adopt a feeder fund structure has been based on practical considerations, and was based on a year of discussions about potential structures and the necessary infrastructure to carry the product. It is considered the most straightforward solution, after weighing cost and efficiency concerns. An alternative that Polaris by-passed as an option was distributing the CSI 300 ETF via a master agent set-up -- a conventional, albeit slightly fussier, way of distributing offshore funds long used in Taiwan.

Polaris has plans to become a regional player in Greater China. Liu anticipates a day of closer financial integration between the three markets, when not only plain vanilla and cross-listed equity products will be available, but also a more colourful and exotic range of ETFs with many underlying asset classes and strategies.

Eventually, a preferred index that will provide investors with a snapshot view of the combined performance of China's CSI 300, Hong Kong's Hang Seng Index and Taiwan's Taiex will emerge in the market, Liu says. And this index will come to standardise Greater China investments, reflecting the real Greater China story by capturing the performance of the three markets.

Russell has made its own attempt to launch a Greater China index, a de facto first in the market. But Liu reckons a domestic version by the three domestic indices will set the trend.

In China, Polaris is reportedly working with Fortis Haitong on the first cross-strait cross-listing initiative, as well as shopping for a deal for an onshore JV. But Liu neither confirmed nor denied the existence of such an agreement in China. He says Polaris is in active negotiation with a top 10 mainland fund house and the company will release details after the talks have concluded.

Aside from the obvious regulatory barriers to market access, the other nagging impediment to cross-strait deals is the alignment of currencies. Before full-on cross-listing initiatives can be introduced, there are still uncertainties as to Hong Kong's future role as an offshore RMB settlement centre. Furthermore, there are also questions as to how the proposed RMB-NTD settlement infrastructure will apply or take shape.

Completing its vision for the Greater China market is Polaris's priority. Elsewhere, it is lining up domestic partners. In Asean, for example, where secondary liquidity is not yet sizeable, having a domestic partner to support and localise an offering will be important, Liu notes. He has deals waiting to be finalised in Singapore and Thailand.

Polaris is also interested in participating in the Islamic story and has had discussions with Bursa Malaysia about potential opportunities there. Polaris says it is monitoring and studying the trend.