It was an extremely interesting Journal of Indexes board meeting, but two things stand out.

For those of you who missed it, we’ve posted an array of comments and photos from Wednesday’s Journal of Indexes board meeting. Although the proceedings may have been dominated by John Bogle’s frontal attack on ETFs, a couple of other issues really stood out for me from the day.

First let’s quickly discuss the Bogle data. Jim Ross from State Street Global Advisors I think provided the most eloquent rebuttal to the data. Ross argued that the turnover numbers and holding periods implicit in Bogle’s data are a distortion, owing to the fact that you have large institutional investors and hedge funds doing myriad things with ETFs. These investors may appear to be long the funds, but may have their positions wholly hedged; they may also be short the fund (which requires the creation of shares). Add this to the fact that looking at monthly Morningstar flows for asset levels that trade minute by minute is a bit of a hack, and the numbers likely ARE a bit of a distortion (and in any event are likely not wildly different from what we see investors do with flows into traditional mutual funds).

All that said, I don’t think it detracts from Bogle’s key point that investors likely DO trade ETFs more, and almost certainly that is to their detriment. The flip side, which I just can’t get around, is that ultimately all of that institutional and retail trading is bringing efficiencies to me as a buy-and-hold investor, who is likely holding a more cost-effective and tax-efficient investment by holding an ETF rather than a classic index fund (Gus Sauter, CIO of Vanguard, disputes the fact that ETFs are more tax-efficient than conventional index mutual funds).

Aside from Bogle’s data, however, one of the biggest issues of the day was the FINRA notice that was distributed recently saying, effectively, that fiduciaries are failing to do their duties if they recommend that clients hold an inverse or leveraged ETF for periods longer than a day (for what it’s worth, FINRA does call the leveraged and inverse products “ETFs,” something we don’t necessarily agree with around here).

This is a STUNNER, and ProShares at least is not taking it sitting down, based on my discussions with Joanne Hill and Steve Cohen. Stay posted … but that notice is out there. Much more detail from Mr. Hougan later today in a feature on this that I’m sure will be good.

As for the other big topic from the meeting … and no, I don’t mean the BlackRock merger, for the first time in a while. The other big topic came from an almost casual remark made by Gus Sauter that the IRS is looking at the ETF tax “loophole”—whereby ETFs are able to slough off low-tax-lot shares during the creation/redemption process, thereby shielding the fund from potential capital gains exposure.

That to me is just nuts, and Gus has raised it before. Vanguard, of course, has a huge stake in the outcome, having both a dominant position in traditional index mutual funds and an ETF share class that piggybacks onto the mutual fund structure.

To me, however, ETFs have always finally gotten it right on taxes: Investors pay taxes at their basis when they sell, as opposed to receiving capital gains from the fund’s internal buy and sell decisions, which are generated by other investors’ buying and selling activity in the fund. I’d be stunned to see the ETF tax treatment changed in any way.

Send in your thoughts to me about FINRA and the tax issues: This e-mail address is being protected from spambots. You need JavaScript enabled to view it . I’m off for vacation next week, so have a happy summer.