"It's not always efficient to try making a market in a cross-listed ETF when the underlying securities are not active," Ross said.

This experience has led SSGA to conclude that in Asia it might make the most sense to cross-list U.S.-based ETFs rather than focus on Asian equities and other securities which have trading hours that overlap with the Asian market day.

PowerShares' Fulton also finds that foreign markets present unique challenges for U.S.-based ETF managers. "Asia is a huge opportunity, but more cumbersome," he said.

These local considerations aren't expected to significantly dampen overall interest in cross-listing ETFs globally, though. Providers point out the increasing activity by exchanges across the globe to make it easier to cross-list from anywhere at any time.

And in selected markets, such as Mexico, local regulatory bodies are showing signs of making real efforts to aid the process. Still, those markets remain the exception to the rule in the global exchange world, according to ETF experts.

Some of the challenges still facing the industry listed by ETF providers working on the issue include:

• Overlap and disparity between underlying securities trading hours and local market hours.
• More detailed and long-range forecasting of investor demand for cross-listings.
• Tax treatment of U.S.-based ETFs in local markets.
• Local investor psychology and cultural considerations.

Distribution issues are leading PowerShares to work closely with parent company Invesco to take advantage of the institutional asset manager's global blueprint. ETF cross-listings will be most actively pursued in Europe and Asia, with Latin America and the Middle East even more opportunistic ETF ventures, Fulton says.

In Europe, Invesco has a huge institutional and retail distribution infrastructure, and that market should take the lead in a major cross-listing initiative from PowerShares.

"Due to the global initiatives of NYSE Euronext and NASDAQ OMX, we think that in 2009, cross-listing into Europe could become a reality," Fulton said. "We are telling our European team that they may have a wide range of ETFs hitting their shelves next year."

One opportunistic example that PowerShares is exploring is in the oil-rich United Arab Emirates' Dubai. The NASDAQ OMX has a strategic relationship with the Middle East financial center of Dubai, and Dubai has been very active in its effort to develop a 21^st-century exchange platform in the Middle East.

Cross-listing In The Middle East?

SSgA also sees the Middle East as an important ETF market, but Ross explains that large financial institutions and the wealthiest investors in the Middle East already trade through branches of Citigroup, Goldman Sachs and other major global financial players with branches in the Middle East.

"The question in the Middle East is not the level of ETF trading activity. That's already there. But is there additional demand that could only come from cross-listing, at the next investor tier down from the large institutions, from midlevel institutions and financial advisors that are not already clients of U.S. banks?" Ross said.

Fulton stresses that while cross-listed ETFs are far from a fait accompli, PowerShares does think it is the best long-term option for global ETF asset growth. "To take large, successful funds and cross-list them drives economies of scale and efficiencies globally," he said.

Ross believes that global cross-listings of ETFs may have some interesting ancillary benefits for ETFs listed in the U.S.

"Getting the demand in the local market is very important, and we are focused on that, but just getting local markets talking about ETFs may also drive trading back in the U.S.-listed ETFs," he said.

In fact, Ross thinks it will be hard to evaluate the success of global cross-listings based solely on the local asset flows.

"Once it is talked about in a local market and can be traded there, the largest investors may seek the greatest efficiency in trading, and that may drive them back to trading a U.S.-listed ETF," Ross said.

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