Euronext Launches Multicurrency ETF Trading

Terry Flanagan

Euronext is launching a multi-currency trading service for exchange-traded funds to attract Asian investors after a 24% increase in trading volumes of European ETFs last year.

The pan-European exchange said in a statement it is launching multicurrency trading service for ETFs on February 17 allowing international investors to trade any Euronext listed ETFs in 20 different currencies. This will be the first time ETFs can be traded in Chinese Yuan Renminbi and the Hong Kong Dollar on a US or European exchange, subject to approval of relevant clearing authorities, according to Euronext.

Pedro Fernandes, head of European exchange-traded products at Euronext, told Markets Media: “Outside Europe, investors in Asia have recognised and accepted the UCITS wrapper. This initiative will facilitate their access to European products and respective listings by reducing currency exchange risk and foreign exchange costs.”

UCITS (Undertakings for Collective Investment in Transferable Securities), is the main European framework covering funds that are suitable for retail investors.

European ETFs had a 24% rise in trading volumes to €326bn last year according to data provider Markit. In addition there were $18.7bn of inflows into European listed exchange-traded products taking assets under management to a record $416bn.

“I do not see why ETF assets should not continue to grow in Europe despite the different savings structure from the US,” Fernandes said. “There are a lot of institutional investors using ETFs in Europe but retail penetration is still small compared to the US.”

One criticism of the European ETF market compared to the US is fragmentation  as issuers having to list the same product on multiple local exchanges, leading to higher costs and wider spreads.

“Europe is moving towards cross-border harmonisation of trading, settlement and clearing practices, but local listings still remain an attractive proposal as issuers want to access local distribution and investor bases at separate exchanges,” said Fernandes.

Last year equity ETPs were nearly three quarters of the trading turnover in Europe, followed by fixed income products with 17% according to Markit. In contrast, trading in commodity ETPs fell by 15% last year.

“One big trend has been smart beta including the minimum volatility strategies,” added Fernandes. “In the US there has been discussion on active ETFs, but these are not likely in Europe until later this year or 2015.”

Smart-beta funds typically include large stocks with healthy dividends to try to identify the most-consistent companies for top-line sales growth and cash flow from year to year.

Societe Generale had the largest market share in trading European ETFs with €56.97bn according to Markit with Morgan Stanley in second place with €34.77bn.

However Morgan Stanley was the top contributing broker for overall European equities trading with €1,191bn of reported volume, up from last year’s €905bn. Markit said: “This large increase in flow saw the firms’ market share of European trading volume rise to 16%, up from 13.2% in 2012.”

Bank of America Merrill Lynch was in second place after moving up four places from 2012 as its trading volume jumped by a third to €988bn.

In third place was UBS after its trading jumped by 27% to €949bn. Markit said: “This surge in trading volume allowed the firm to crack the top three after coming in fifth in the 2012 rankings.”

Total equity trading in Europe was €7,660bn in 2013, an 11.5% increase from 2012, according to the 25 contributing brokers to Markit MSA. Data in Markit MSA covers an estimated 75% of cash equity trading in Europe across traditional exchanges, multilateral trading facilities and over-the-counter markets.

“The fledgling recovery was reflected in equity trading flows which picked up from their 2012 lull,” said Markit. “The continuing anxiety in European markets is still felt by the fact that the rise in trading volumes is down in real terms when compared to the rise in European equity values.”


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