European ETF Trading Sets Monthly Record

Shanny Basar

Trading of European exchange-traded funds reached record volumes last month on Tradeweb, the electronic execution platform, as new reporting requirements are expected to boost ETFs in the region.

Tradeweb said in a statement that total traded volume of European  ETFs was just shy of €20bn ($25bn) in January, 12% more than the platform’s previous high in May last year. The share of European ETF transactions processed via Tradeweb’s Automated Intelligent Execution tool was 29%.

Adriano Pace, managing director for equity derivatives at Tradeweb, said in a statement: “2018 promises to be a very exciting year for European ETFs. The new reporting requirements under MiFID II will provide investors with much-needed visibility into ETF trading activity, enabling them to better gauge the full depth of the market.”

MiFID II, the regulations which came into force in the European Union last month, require ETF trades to be reported, increasing transparency in a market where approximately 70% of trading volume is over-the-counter.

Assets in ETFs and ETPs listed in Europe reached a record $856bn at the end of January, with net inflows of $16bn, according to ETFGI, an independent research and consultancy firm.

Brian Healy, director of traded markets, development, operations at the Irish Stock Exchange, said at a conference last month that MiFID II will transform the European market for ETFs. Healy said: “MiFID II is a step change for ETFs. The European market is nascent but has huge potential. There is an opportunity to increase confidence and spur growth.”

BlackRock said in the latest newsletter from Plato Partnership, the non-profit industry group which aims to market structure, that ETFs are set to become a much more significant part of investors’ portfolios.

“Demand from investors for all low-cost investment vehicles, such as emerging index-tracking funds as well as ETFs, will grow dramatically as a result of the greater transparency introduced by MiFID,” added BlackRock. “The US provides a template for how retail investor adoption of ETFs could evolve over the next three to five years.”

Detlef Glow, Lipper

Detlef Glow head of EMEA research at Thomson Reuters Lipper, said in his Monday morning memo this week that ETFs have become more popular with European investors, in preference to mutual funds that track an index.

“These products enjoyed high net inflows for 2015 and 2016, but they faced net outflows for 2017, while ETFs enjoyed another year of record inflows,” added Glow.

He continued that one of the reasons for the switch is the high liquidity of ETFs, which can be traded easily on exchanges, while investors have to wait one or two days after trading to learn the settlement price of a mutual fund. In addition, ETFs publish their holdings every trading day, while many index funds publish their ten top holdings once a month.

“I strongly believe ETFs will continue to outgrow index funds, since investors in the future will further appreciate the higher transparency, liquidity, and efficiency of ETFs,” said Glow. “While this does not mean index funds will disappear from the product landscape in Europe (there is also a market for these products), the growth rate for ETFs will probably be much higher than for index funds.”

Sean Tuffy, head of regulatory intelligence, custody & fund services, EMEA at Citi, said in his new monthly financial regulation update: “There’s hope that the enhanced transparency under MiFID II will be a shot in the arm to EU ETFs.”

However Tuffy warned that as the global ETF market continues to grow, there will be more attention from regulators. “With consultations expected from International Organization of Securities Commissions, the European Securities and Market Authority, and the US Securities and Exchange Commission, we anticipate ETFs will remain at the top of global regulators’ agendas,” he added.

Market volatility spiked this month but Martin Small, head of US iShares, said in a blog that heavy volumes did not translate into massive ETF outflows last week.

“Sharp swings across global markets stoked heavy ETF trading volume but failed to produce an exodus from ETFs overall,” added Small. “Instead, we believe that ETFs helped investors transact smoothly and in large volume.”

Small said US-listed ETFs recorded volumes of $240bn and $260bn on February 5 and 6, among the busiest trading days on record in US equities, as the market had its steepest decline in more than two years.

“ETFs accounted for nearly 40% of equity trading volumes on the heaviest days, relative to their five-year average of 26%,” added Small. “But net redemptions from all US-listed ETFs last week were just a sliver of that total, at $29.9bn.”

He continued that BlackRock’s analysis of last week’s trading showed that heavy secondary market trading was even more efficient than usual. “Creations and redemptions resulted in just 3.86% of US equity market trading over five sessions last week, down from an average of 4.32% in the 12 months ended in January,” added Small.

Eric Balchunas, senior ETF analyst for Bloomberg Intelligence, tweeted:


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