Enrico Bruni

Specifically, the link will be between Tradeweb and TSE’s RFQ platform CONNEQTOR. 

According to the businesses, this will “allow Tradeweb buy-side clients to include CONNEQTOR liquidity providers when launching a trade enquiry on the Tradeweb Japan-listed ETF marketplace”. 

Enrico Bruni, head of Europe and Asia business at Tradeweb, said: “This exciting collaboration between Tradeweb and TSE’s CONNEQTOR platform demonstrates our focus on linking liquidity pools for the benefit of institutional investors looking to transfer risk with a higher degree of certainty. 

“We are in the business of enhancing clients’ execution experience, and we look forward to bringing more time and cost efficiencies to investors trading Japanese ETFs, both locally and globally.”

The first transaction on new connectivity has already taken place with Global X Japan having been the first to execute.

Through the direct link, clients can submit orders from the Tradeweb user interface to CONNEQTOR’s list of market makers as well as to Tradeweb’s network of liquidity providers. 

Transactions with CONNEQTOR market makers will be cleared and settled through the post-trade infrastructure of TSE.

“CONNEQTOR has been developed as a platform to enable investors to trade ETFs ‘faster and cheaper’. We hope that the new connection with Tradeweb will promote investment in the Japanese market by allowing investors outside Japan, who have had difficulty using CONNEQTOR, to easily access ETFs listed on the Tokyo Stock Exchange from overseas,” added Moriyuki Iwanaga, president of Tokyo Stock Exchange.

“TSE will continue to strive to provide and develop a highly convenient market environment, where investors can enjoy better prices and smoother execution.”

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Named SPDR SSGA MyIncome ETFs, the suite looks to offer investors the ability to build their own custom bond ladder portfolios to manage their respective cash flow, interest rate risk, and liquidity needs.

The suite consists of 14 actively managed target maturity ETFs with various maturity years ranging from 2026 to 2034.

“Fixed income investors have been enjoying the highest interest rates seen in decades, but many are wondering how they can protect against the potential for precarious rate fluctuations ahead,” said Anna Paglia, chief business officer at SSGA.

The SPDR SSGA MyIncome ETFs are designed to help investors build custom bond ladder portfolios to manage interest rate risks, cash flows, and liquidity needs. The suite is made up of both corporate bond and municipal bond ETFs.

The nine corporate bond ETFs aim to maximise current income while seeking preservation of capital, while the five municipal bond ETFs look to maximise current income that is exempt from regular federal income taxes while seeking preservation of capital.

“Investors are looking for ways to balance income and stability in this rate environment, and building a bond ladder portfolio through investing in ETFs may be an efficient way to manage duration risk and cash flow to meet liquidity needs,” said SSGA.

The investment strategies of these new ETFs are designed to enable portfolio management teams to maximise yield while preserving capital through robust investment processes and risk management.

SSGA added that its active approach seeks to enhance the income profile of a target maturity ETF portfolio, while also managing for liquidity, sector, issuer concentration, and broader macro risks.

SSGA’s dedicated active fixed income portfolio management team will manage the funds.

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One of the biggest themes in ETF evolution over the last few years has been in the increase in scope of products offered to the market. With increased competition, new launches are now targeting gaps in investors’ universes with more specific products. This has been witnessed across asset class as well as developments in actively-managed funds being launched in an ‘exchange traded’ wrapper. Some more recent examples would include funds tracking crypto, ESG or other fundamental factors such as quality or income. 

This increase in product type has widened the pool of prospective investors – both institutional and retail – and the competitive nature of the industry has seen costs reducing, which in turn brings ETFs to more investor’s attention. This expansion in both client-base and products has led to a rapid growth is assets and trading volumes.

Consequently, ETF trading techniques have evolved to source new pricing opportunities either via electronic Request For Quote (RFQ) platforms and/or ETF algos and to take advantage of ETF trading provision at the exchanges themselves. We have also seen traditional ETF liquidity provision firms moving into forming bilateral relationships with buys-ide dealing desks which has further strengthened ETF pricing.  Finally, there has been significant innovation in the ETF post-trade analytic capabilities for traders – either developed inhouse and/or utilising third party solutions creating a deeper understanding of implementation costs which can be used to improve future trading outcomes.

What role are active ETFs playing in the progression of this asset class? 

When the investment backdrop becomes more challenged, investors have to take greater consideration of investment risk rather than simply buying market exposure (beta) in order to generate positive returns. Actively-managed ETFs complement a passive approach, by providing access to specific investment processes designed to achieve specific results such as index outperformance, income generation, or factor tilts such as quality, duration or yield, all while maintaining the attributes of the ETF structure. 

Active ETFs have been released across different asset classes and have appealed to new and old ETF investors alike as they provide middle ground between passive & active investing. Through active ETFs, managers are able to offer access to internal intellectual property and house expertise such as bottom-up stock research, allocation weightings etc that not only differentiate their product but can help investors generate alpha for a portfolio alongside core passive holdings.

What are the impacts of fragmentation linked to ETFs? 

The most obvious impact of fragmentation has been on the perception of an absence of secondary-market liquidity. This has mostly likely, held back some adoption of ETFs from investors but has also led to increased innovation from all market participants to source, aggregate and efficiently price ETFs. RFQ platforms have taken the lead for traders when seeking risk prices as they reduce the opportunity cost of requesting prices from multiple liquidity providers but in an information-controlled manner. Traders have also adopted more dedicated ETF trading algorithmic strategies launched to empower dealers with the ability to access a wider range of liquidity pools at differing urgency settings which alter the child-order placement logic, often within fair-value frameworks.

On the opposite side of the trade, market makers and liquidity providers constantly search to improve efficiencies within their processes to better utilise their balance sheets to offer tighter pricing and/or greater liquidity. Fragmentation, however, means that market makers have to disperse their liquidity among multiple exchanges and trading venues reducing the volume available in each. Additionally, the costs associated with post-trade fragmentation (Central Counterparty Clearing & Central Securities Depositories) further reduces the cash market makers can commit into the market, instead having it tied up to satisfy post-trade provisions.

What can be learnt from the US? 

Aside from the simpler US ETF market ecosystem, the European ETF market would greatly benefit from increased retail ETF adoption and participation as seen in the US. Technology firms are looking to help platform providers streamline the ETF process, reducing complexity where platforms may currently struggle due to legacy systems, in order to increase/improve the ability of platforms to offer more ETF trading to their clients. Increasing adoption of ETFs from the retail community combined with improved connectivity from platforms to exchanges creates opportunities for buy-side dealers to interact with these improved volumes on exchange as professional and retail volumes create a better dynamic for orderbook trading.

Improvements could also be made in financial education – from school age through to adult investors. With greater demands being placed on individuals’ long-term savings capital, a deep and sound knowledge of all financial products would encourage people to take more control of their investment solutions at an earlier age and low-cost ETFs are well placed to form part of their investment toolkit.

The post Fireside Friday with… Fidelity International’s Tim Miller appeared first on The TRADE.

These innovations have attracted a wide range of investors – from institutional to retail – who seek to increase returns and manage risks in an ever-shifting market environment. However, huge disparities exist between trading volumes in the US and Pan-European markets. 

Looking at the data, iShares by BlackRock reported that in the first quarter of 2024, trading volumes for US ETFs were at $10.6 trillion. In Europe, ETFs accounted for $782.9 billion in the same period. This can be attributed to differing ways in which active ETFs are adopted, fragmentation in Europe, differing levels of retail engagement, as well as the presence of an established consolidated data source in the US. 

A key theme linked to the evolution of ETFs globally has been the increase in scope of products offered to the market. Product type enhancements have led to a wider range of prospective investors. As a result of this increased demand and competition, costs have risen, which have ultimately led to ETFs attracting more attention from investors. Assets under management (AUM) and trading volumes for this asset class have experienced a significant rise over the last few years. 

“Consequently, ETF trading techniques have evolved to source new pricing opportunities either via electronic request for quote (RFQ) platforms and/or ETF algos and to take advantage of ETF trading provision at the exchanges themselves,” says Tim Miller, senior trader at Fidelity International. “We have also seen traditional ETF liquidity provision firms moving into forming bilateral relationships with buy-side dealing desks which has further strengthened ETF pricing.”

Active ETFs

Actively managed ETFs have introduced a new dimension to the ETF landscape. The instruments combine traditional active management with the liquidity and transparency of ETFs, while providing access to specific investment processes such as index outperformance and income generation, alongside maintaining the key characteristics of ETF structures. 

“Active is a game changer and it’s going to broaden the audience yet again for the product set. It’s going to disrupt the traditional mutual fund market and I truly believe it’s going to position ETFs as the wrapper of choice for managers,” says Chris Gooch, head of ETF/index sales and business development, EMEA at Citi. 

“What’s particularly notable is the willingness of big asset managers to launch their latest active strategies in an ETF wrapper. And for me that means that every asset manager is going to need to have a clear strategy of how they’re going to respond.”

The US market is undeniably ahead of Europe in its adoption of active ETFs thanks to the Securities and Exchange Commission’s (SEC) relaxation of its regulation in 2019, which resulted in more discretion in ETFs.

The relaxation meant that ETFs would no longer have to make their holdings public on a daily basis, which became more attractive to active fund managers who view their stock picking abilities as intellectual property. Within Europe, disclosure on portfolio holdings is still required on a daily basis, and has previously stifled adoption in the region. However, with time, adoption of active ETFs is becoming more apparent. 

“The impact of there being more acceptance of active ETFs within Europe means that when you look at trading costs like spreads or the creation redemption costs, you’re starting to see them narrow and become more like passive traded ETFs,” notes David Smith, head of ETF sales at SIX Swiss Exchange.

“There’s less difference between the two and we’ve seen the popularity certainly increase in active ETFs. All that being said, active is a small part of the European ETF industry, accounting for approximately 2% of AUM according to ETFGI as of April 2024.”

Active ETFs have been released across different asset classes and have appealed to new and old ETF investors alike as they provide middle ground between passive and active investing, emphasises Miller. 

“Through active ETFs, managers are able to offer access to internal intellectual property and house expertise such as bottom-up stock research, allocation weightings etc that not only differentiate their product but can help investors generate alpha for a portfolio alongside core passive holdings,” he says. 

Disparities in trading volumes 

Despite continued evolution for the asset class in a broader sense across the globe, it can’t be ignored that trading volumes for ETFs in the US far exceed those in Europe and the UK. This reflects a more mature and established market present in the US, with greater investor adoption and noticeable liquidity.

“At the broadest level, the US ETF market benefits from having launched the first funds around 10 years ahead of Europe and therefore is much more embedded in the investment psyche, particularly among retail investors,” highlights Miller. 

“Although the US ETF market is undoubtedly larger than Europe, the top 100 US-listed ETFs account for around two-thirds of both the entire US ETF assets and trading volumes, demonstrating that the US is characterised by a relatively small number of mega AUM ETFs and mega-liquid ETFs. Outside of the top 100 or so it starts to look a lot more like Europe.”

Several factors exist which contribute towards greater ETF volumes in the US. Europe and the UK have noticeably less AUM linked to the segment, but also, various jurisdictions, venues and clearing houses which contribute to the disparities in trading volumes. 

“In Europe, there are about 11,000 different trading lines of ETFs. That liquidity can be spread across the different countries and different listings,” highlights Smith. “There’s multiple listings of the same ETF, whereas the US doesn’t face that same problem and that can mean that liquidity is more concentrated in a fewer number of ETFs.”

ETFs in the US typically experience more favourable liquidity compared to their European counterparts, resulting in narrower bid-ask spreads and more efficient trading. Contrastingly, European ETFs often experience lower trading volumes, which can lead to wider spreads and less favourable execution for investors.

“The US has many immensely liquid, mega-sized ETFs that trade colossal amounts. Europe just doesn’t have the liquidity that the US does,” emphasises Simon Barriball, ETP and portfolio trading Europe at Virtu Financial. “We don’t have ETFs with that scale of AUM in them or anything like the daily turnover on screen in the US and that’s a huge differentiator.”

Fragmentation 

With ETFs increasingly becoming more popular in Europe, fragmentation and regulation have been pegged as two key pain points that need to be addressed going forward to boost growth in the region – a viewpoint that has been echoed at various panels at conferences in recent months. 

“The most obvious impact of fragmentation has been on the perception of an absence of secondary-market liquidity,” highlights Miller. “This has mostly likely held back some adoption of ETFs from investors but has also led to increased innovation from all market participants to source, aggregate and efficiently price ETFs.”

Echoing this sentiment, Citi’s Gooch notes that European fragmentation makes it hard for investors to get a true representation of what the actual liquidity is for ETFs in the European market. 

“That [fragmentation] has led to the perception, I would argue incorrectly, that the European market is not liquid,” argues Gooch. “This has stopped new clients adopting ETFs and has led some clients to trade ETFs listed in the US, rather than ETFs listed in Europe, even with the structural benefits that European ETFs can present to certain investors.”

Fragmentation does, however, provide some benefits, in the sense that it gives investors increased choice when considering their different objectives, where to trade and settle, as well as the types of currency they would like to execute in. It is, nevertheless, more complicated to navigate a fragmented environment, especially if liquidity does not always appear to be there across the different lines of ETFs. 

“The fragmentation in Europe extends to the fragmentation of how orders are executed. Probably only about 20% of trading is on exchange, 50% of trading is in RFQs and the remaining 30% are over SIs and other MTF type venues,” notes Barriball. “There’s also the fragmentation of trading and I think that in itself, affects the perception of liquidity as well, because you need to have a broker who can help you find where the liquidity is.”

Retail

Another key driver that leads to the disparities in trading volumes when comparing the US with the UK and Europe is the region’s differing levels of retail participation – with retail activity making up 5-7% of total trading in Europe compared to over 25% in the US . As a historically more passive instrument, ETFs have proved popular with retail investors who don’t want to take on too much risk. 

“Already, it’s a bigger market, but the split of that market is much more evenly institutional and retail,” says Gooch. “There’s much more of a trading mindset in how they’re using the products, whereas the institutional client base, particularly in Europe, is much more around strategic asset allocation and tactical asset allocation, which doesn’t have the same trading velocity.”

Retail adoption of ETFs in the US is more prevalent than in Europe largely because of a more widespread investment culture among individuals, backed by more favourable regulatory conditions. The US also has a larger variety of ETFs available and when paired with better investor education and greater access, this encourages more participation from retail investors. 

“Increasing adoption of ETFs from the retail community combined with improved connectivity from platforms to exchanges creates opportunities for buy-side dealers to interact with these improved volumes on exchange as professional and retail volumes create a better dynamic for orderbook trading,” notes Miller. 

Technology firms, in this context, are able to help platform providers simplify ETF procedures, ultimately removing complexity linked to legacy systems, to enable clients to have improved ETF trading experiences on said platforms. 

Elsewhere, looking forward, Citi’s Gooch suggests that the EU’s retail investment strategy also has potential to help boost ETF participation in the region. “Some of this was watered down from what many in the ETF industry were hoping for, but it is, at the heart of it, pushing for retail investors to be treated much more fairly,” he says. “The ETF as a cost-efficient vehicle can only win from that statement of intent.” 

Consolidated tape

Looking at potential innovations to boost ETF adoption in the UK and Europe, it comes as no surprise that one of the first things that comes to mind is a consolidated tape. A consolidated tape in Europe will enhance transparency and price discovery in the ETF market, simplifying investors’ access to real-time data across different venues. 

As a result, the improved visibility could lead to a boost in market liquidity and efficiency, which would be beneficial for all market participants. It could also lead to a boost in retail volumes if individual investors had access to a clearer view of the market, alongside more participation from institutions.

“If you understand what the aggregate volume is and the true volume, it’s a real benefit to issuers trying to get people to invest in ETFs in the first place, because you realise just how liquid they are in aggregate. The absence of that information means you have to go looking for it – and many people don’t,” argues Barriball. “A consolidated tape would have huge benefits to ETF issuers trying to get more money into ETFs, improving people’s understanding of aggregate liquidity and also for making meaningful pre- and post-trade calculations.”

Such benefits have already been observed in the US, which has had an established consolidated data source in place for years. This creates enhanced market transparency by providing real-time, consolidated trade and quote data across all major exchanges, helping improve price discovery, market efficiency, and investor confidence through the presentation of key market information.

“In the US, where we do have a consolidated tape, that has allowed for the asset class to grow at a much bigger rate from a distribution standpoint when liquidity is easily accessible, easily visible and the execution quality that comes on the back of that is just better. It’s allowed many different firms to launch ETFs and grow AUM by going out to the investor community and selling those ETFs confidently,” says Brian Gilman, ETF & FI liquidity sales at Virtu Financial.

“In the States, you’re already starting with this head start of investor confidence because of execution quality and the consolidated tape. From a distribution standpoint it’s an easier arena for sure.”

Regulators within Europe and the UK appear to be geared towards ensuring greater transparency, which is manifesting itself through a consolidated tape. However, how this will materialise when considering ETFs specifically has not yet been finalised. Regardless, it’s expected that it will help with frustrations associated with fragmentation as discussed before. 

Lessons from the US

When comparing these two regions, it’s worth considering what could be learned from the US and translated into European markets to help improve the ETF landscape. The US has a handful of very dominant exchanges, one dominant clearer and a key currency. However, such characteristics cannot directly be translated into a European context.

“There is a lot around the US that simply are structural advantages of that market which we cannot emulate,” emphasises Gooch. “However, we’ve got the innovation that’s currently happening around retail and is appealing to the next generation of investors, which is great because that’s where there’s going to be this huge passing of wealth.”

Moving forward, there are number of things that can be adopted from across the pond to help boost trading volumes within the UK and Europe. Namely, boosting active ETFs through the relaxation of regulations linked to disclosures, a promotion of retail engagement, and greater transparency in the form of a consolidated market data source, which will ultimately contribute to more liquidity. Can Europe eventually match or compete with the US when considering trading volumes for this specific asset class? Only time will tell – following in the US’ footsteps might not be such a bad idea.

The post Lessons to be learned from the US to boost European ETF growth appeared first on The TRADE.

Active is a game changer and it’s going to broaden the audience yet again for the product set. It’s going to disrupt the traditional mutual fund market and I truly believe it’s going to position ETFs as the wrapper of choice for managers. What’s particularly notable is the willingness of big asset managers to launch their latest active strategies in an ETF wrapper. For me that means that every asset manager is going to need to have a clear strategy of how they’re going to respond.

From an investor perspective, the question is why wouldn’t you want an ETF when ETFs represent, in many ways, the latest fund technology at a more competitive price point. For example, you have the ability to see – on a daily basis – what your underlying exposure is, you have the ability to trade intraday with anonymity and you have the ability to quickly onboard the product without having to do a full RFP.

We’re already seeing a clear preference for ETFs in the data. If you look at 2023, you had inflows into ETF wrapped products of around $600 billion versus outflows of $400 billion (per EFPR) for non-ETF wrapped products. The availability of active strategies within the ETF wrapper is only going to accelerate and reinforce that trend.

What would you say is the reason behind significantly different volumes in the US versus the UK and the EU?

They are dramatically different partly due to the size of the market, and partly because of who and how the product is being used. To put that into context, last year in the US there was total traded value of $37 trillion worth of AUM, and that was on approximately $9 trillion worth of AUM, which means that those assets were being turned four times. If you look at Europe, there was a trading value of $2 trillion on approximately $1.9 trillion of AUM, (per Bloomberg, FlowTraders) – so those assets are only just turning over once. Therefore, you have a bigger market, but you’ve got a much more traded market in the US compared to Europe.

A big driver of that is the large retail usage of ETFs in the US. It’s already a bigger market, but the split of that market is much more evenly institutional and retail. There’s a much more trading-focused mindset in how they’re using the products, whereas the institutional client base, particularly in Europe, is much more around strategic asset allocation and tactical asset allocation, which doesn’t have the same trading velocity.

This manifests into the number of ETFs in the US that are ‘trading vehicles’ due to their size and average daily trading volume. There’s a much bigger universe of those products in the US than you’d find in Europe.

What are the key impacts of fragmentation on ETFs?

Fragmentation’s main impact is that it’s very hard for investors to get a true representation of what the actual liquidity is for ETFs in the European market and that has led to a perception – which I would argue is incorrect – that the European market is not liquid. This has stopped new clients adopting European ETFs and has led some clients to trade ETFs listed in the US, rather than ETFs listed in Europe, even with the fiscal benefits and unique exposures that European ETFs can bring. Overall the fragmentation has constrained the growth in client usage of the product.

From a market making perspective, it also adds another level of complexity. Some of this has been resolved with the international settlement model, but each different listing of an ETF can have a unique settlement location which means when you’re transacting with clients in different regions you may need to realign these positions. From an ETF Issuers standpoint, they have to list different versions of their ETF in multiple locations, which drives cost and the need for additional controls to satisfy regional requirements.

What lessons can be learnt from the US?

An important point about the US is that there are simply structural advantages of that market which we cannot emulate, however there are some specific learnings that can really help and are already being ported across.

On the client side, we have the innovation that’s currently happening around retail which is appealing to the next generation of investors. Itis great because that’s where there’s going to be this huge passing of wealth.

On the product side, there are underlying ETF strategies that have proved themselves in the US market and can be equally successful in Europe. The most recent examples that I would point to are options-based strategies that have translated really well here. There is also the evolution of Active which began in the US and is starting to take shape in Europe.  

On the regulatory side, there are many parts that we can’t adopt due to regional nuances and the politics of getting things done in Europe, but there are some specific items like the consolidated tape that would be a great initial step in helping with the fragmentation issue.

The post Fireside Friday with… Citi’s Chris Gooch appeared first on The TRADE.

The new index will be calculated using listed options on the iShares 20+ Year Treasury Bond ETF (TLT) and will enable market participants to track future expected volatility in the US Treasury market.

VIXTLT Index will be available in both percentage price volatility and basis point volatility terms.

The new offering expands Cboe’s volatility index suite and adds to Cboe’s current offering of more than 450 derivatives-based indices, covering various strategy benchmarks and asset classes.

TLT is an exchange-traded fund (ETF) composed of US Treasury bonds with remaining maturities exceeding twenty years that have a relatively high duration.

Highly liquid options on TLT with a wide range of strikes provide information on investors’ potential viewpoints on the future of US interest rates. This is then distilled by the VIXTLT Index methodology to one number designed to represent a consensus view on expected US Treasury volatility.

“Cboe offers a comprehensive ecosystem of services, touching every aspect of the customer experience – from market access and data, to tradable products and beyond,” said Rob Hocking, senior vice president and head of product innovation at Cboe.

“By combining our derivatives expertise with leading indexing capabilities, we are able to identify gaps in our product offering and utilise our robust technology, data and customer feedback to continuously drive product development that meet customers’ needs.”

The post Cboe Global Markets to launch US Treasury market volatility index appeared first on The TRADE.

The rapid growth in the ETF industry has been well documented and expectations suggest this will continue – both in assets and product types. Increased ETF usage among both institutional and retail investors has led to some interesting changes in trading behavior as dealers are able to take advantage of new liquidity sources and trading infrastructure developments. Increasing adoption of ETFs from the retail community, combined with improved connectivity from platforms to exchanges creates opportunities for buy-side dealers to interact with these improved volumes on exchange, as professional and retail volumes create a better dynamic for orderbook trading. Traders now have more optionality around how and when to trade whether they require immediacy via request for quote (RFQ) platforms or working anonymously over a longer intra-day timeframe via dedicated ETF execution algorithms. Fixed income ETFs have seen significant growth as investors have been drawn to the liquidity benefits of the ETF wrapper versus the underlying bond markets. For most buy-side desks, all ETF trading irrespective of asset class is undertaken by equity-specialist traders who have upskilled their understanding of the market forces and dynamics within other asset classes.

What innovation are you seeing in this space?

The ETF industry has been one of continuous innovation and that remains the case today. At the product level, we are seeing a rise in active ETFs, which not only offer more choice for current ETF users but should create opportunities for new investors to invest into ETFs and subsequently new trading opportunities for buy-side desks. We are also seeing solutions from the exchanges themselves such as exchange-based RFQs that utilise straight-through processing (STP) protocols all the way through to settlement, which improves efficiency and ultimately cost in the trading process. Alongside these developments at the exchange level, more dedicated ETF trading algorithms have been launched which empowers dealers with the ability to access this wider range of liquidity pools at differing urgency settings which alter the child-order placement logic, often within fair-value frameworks. Finally, there is also innovation at RFQ platforms with the automation of ETF execution via trader-customisable rules that allow quick and efficient trading of smaller tickets leaving the trader to concentrate on orders where they can add most value.

How are traders and market makers currently addressing liquidity fragmentation?

Traders are increasingly using the wider range of trading options within their toolkit as well as pushing for further ETF algo technology to bring together cross order book liquidity on an ETF and other proxy assets to provide liquidity on any single target listing. Alongside this, trading desks have been more open to adding new market makers to their risk-provision panels which leads to greater pricing competition and ultimately, improved trading outcomes. Market makers constantly search to improve efficiencies within their processes to better utilise their balance sheets to offer tighter pricing and/or greater liquidity. Market makers would also look to benefit from any harmonisation of trading venues and order books to bring their liquidity to a single point of execution. Additionally, making the post-trade fragmentation (central counterparty clearing and central securities depositories) more streamlined would allow market makers to commit more cash into the market, rather than having it tied up to satisfy post-trade provisions.

What new offerings are being developed to enhance liquidity and execution quality?

Aside from the developments mentioned previously, there are moves within the retail space to increase/improve the ability of platforms to offer more ETF trading to their clients. Technology firms are looking to help platform providers streamline the ETF process, reducing complexity where platforms may currently struggle due to legacy systems. There has also been an increase in ETF post-trade analytic capabilities for traders – either developed inhouse and/or utilising third party solutions that can offer detailed breakdowns of not only each trade itself but can provide information on changes of liquidity during the trading process such as price movement, reversion, or the widening of spreads. Finally, an efficient and well-implemented consolidated tape could help to complete the circle allowing greater transparency at the pre- and post-trade level generating greater confidence in ETF trading for all users of ETFs. 

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Simon Barriball, Virtu Financial

Simon Barriball, ETF and portfolio trading, EMEA, at Virtu Financial emphasised the detrimental impact the fragmented venue landscape was having on the assets – highlighting the sheer number of listing venues that Europe has for each ETF, as well as multiple sets of currencies and settlement depots. Europe has twice the listings of the US for just a fifth of the AUM, he explained.

“On the regulation side of things, it’s incredibly difficult in Europe to gauge aggregate trading volume as trades are reported across multiple venues, multiple tickets even for the same ETF,” said Barriball. “Post-Brexit, you even have dual reporting in some instances between UK and EU jurisdictions. That data is hugely important for making meaningful pre- and post-trade analytics. 

“We need a consolidated tape, which has taken too long. Current proposals look like they don’t really fit what we need for ETF. There’s only top of book data and no venue attribution and obviously the time scale is still really vague.”

The issue of fragmentation in the European ETF landscape was echoed by David Smith, head of ETF sales at SIX Swiss Exchange. He highlighted that fragmentation is an issue that exists in many parts of the financial landscape, felt most keenly in areas like the ETF product segment.

“Investors have different demands – what they want, how they want to trade and settle. However, the result of that is you find dispersed liquidity. It’s difficult to know where to trade and how to trade and that’s clearly a factor why the RFQ protocol has become so popular,” said Smith.  

Inevitable comparisons were drawn between European and US markets in relation to ETF at TradeTech this week – a discussion point seen across many of the event’s panels across several other aspects of the European capital markets. Panellists discussed what could be learned from the US and translated into European markets to help improve the landscape here.

“When looking at the US market, they have one very dominant exchange, one dominant clearer and a key currency. However, in Europe, it’s very fragmentated, multiple exchanges and different currencies,” said Ben Miller, vice president, ETF specialist sales, EMEA, at Citi Group.  

“A centralised tape would be brilliant and a centralised clearing – in time we could get there – which would really help. Both markets have done a fantastic job of getting institutional adoption. If you were trading $200 million for a US ETF or European ETF, you’re going to get very similar experience.”

Miller added that the US has done a great job at rounding out that ecosystem with retail, adding that retail is seeing some strong growth in Europe and has the protentional to be the main driver for improving the European ETF landscape.

Providing a buy-side viewpoint on the European ETF landscape, Tim Miller, senior trader at Fidelity International, noted that we are experiencing an inflection point when considering ETFs.

Technology is having meaningful impacts on solving issues linked to ETFs in Europe, helping improve infrastructure and the volume of flow on exchange.

Such developments, he argued, will continue to promote growth within this segment of financial markets, helping bring everything together more efficiently.

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The offerings build on existing strengths in trade surveillance, algo and quant trading solutions, leveraging the recent acquisitions of Abel Noser Solutions in August and RCM-X in March 2022.

Keith Todd, chief executive of TT, said: “Sound compliance and robust trade surveillance are must-haves and only growing in importance across asset classes as regulators around the globe are imposing significant fines and holding firms accountable for the actions of their people. We see a tremendous opportunity to both capture new business and provide a second line of defence for clients who already rely on our technology for their trading-related needs.”

TT Compliance is set to take from the TT Score trade surveillance offering, originally built for exchange-traded derivatives, as well as Abel Noser’s Compliance+ solution – primarily utilised for US equities. KRM22 – focused on risk management and capital markets – will also be used to extend the capabilities of TT Score and Compliance+ by building a new multi-asset class surveillance platform, expected in Q2 2024. 

The newly branded TT QTS will leverage its enhanced quant trading offering following the previous acquisition of RCM-X, including the introduction of TT Premium Order Types last year. It will also include the TT Strategy Studio as well as a new suite of quantitative solutions for fixed income trading, beginning with US Treasuries.

Technology from Abel Noser’s broker-neutral trade optimisation platform, START, is also set to be integrated as part of the new TT QTS business line.

The new units are part of the firm’s wider reorganisation into six distinct lines of business, aimed at supporting clients’ multi-asset needs. 

These include: TT Futures & Options, led by Alun Green; TT Fixed Income, led by Christopher Heffernan; TT FX, led by Tomo Tokuyama; TT Compliance, led by Ted Morgan; TT QTS, led by Joe Signorelli; and TT Data & TCA, led by Peter Weiler (Abel Noser Solutions chief executive, set to become EVP of Data & TCA on January 1).

Read more: Trading Technologies bolsters senior leadership team with three new additions

All business line leaders will report to Justin Llewellyn-Jones, appointed chief operating officer earlier this month.

Speaking to the name of the company, Todd explained: “We are calling the new business line QTS to underscore that our team is not just developers building algos. These professionals are experts in data science and analytics, along with trading and risk management in multiple asset classes, on top of their coding and development skills. We’re excited to further expand into new asset classes and bring our award-winning tools to a broader user base as we continue to grow our multi-asset offering.”

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The LBX suite is now connected to ICE ETF Hub’s FIX application programming interface (API), providing third-party platforms and ETF market participants with improved access to the ICE ETF Hub platform, alongside the ability to systematically manage their creation and redemption orders.

Users of LBX will also be able to receive ETF creations and redemptions in real time, allowing their portfolios to be managed within the OEMS for portfolio and trade management.

“By modernising and bringing new efficiencies to the creation and redemption process, the ICE ETF Hub offers a powerful platform for accessing the ETF primary market,” said Peter Borstelmann, president of ICE Bonds.

“Connecting with LiquidityBook’s LBX OEMS gives institutional investors seamless access to our workflow over a highly scalable trade management platform, and it builds on our goal of providing an open architecture framework to create a unique network for ETF market participants.”

Currently, ICE ETF Hub supports US-listed equity, fixed income, derivative, commodity and multi-asset ETFs. Primary market participants in the ETF space also have access to functionality within the platform that helps facilitate the assembly and negation of custom basket proposals.

“Our OEMS platform helps asset managers, hedge funds and other institutional investors manage positions and transact efficiently across markets,” said Kevin Samuel, chief executive of LiquidityBook.

“Our cloud-based offering provides our clients an alternative to the inefficient file-to-file and spreadsheet-based processes that portfolio managers have used in the past and gives them more capacity to handle increasing order volumes, which promotes growth. We are excited to work with ICE to expand this functionality within the ETF creation and redemption process.”

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