MiFID II to Boost European ETF Liquidity

Terry Flanagan

New reporting regulations should boost liquidity in exchange-traded products listed in Europe and unlock further growth as assets have exceeded $500bn.

Paul Young, SPDR ETF Capital Markets – Europe, Middle East and Africa, State Street Global Advisors, told Markets Media that the MiFID II proposals should increase transparency in European ETFs.The first MiFID regulations focussed on cash equities and excluded ETFs.

“MiFID II introduces pre-trade reporting but also, importantly, post-trade requirements,” Young added. “Clients will be able to see where ETFs have traded, assess liquidity and understand the costs.”

Young is speaking on a panel about ETFs at Markets Media’s European Trading Network on May 21 at the London Stock Exchange.

Last month assets in exchange-traded funds and products listed in Europe broke through the $500bn milestone for the first time, 15 years after the first ETFs were listed in the region, according to consultancy ETFGI.

This month marks the four-year anniversary of State Street Global Advisors launching its European ETF business. The firm has 65 ETFs listed in Europe and has gathered more than $13bn in assets, including $2bn in the year-to-date, according to Young.

“We are investing heavily in the product which shows our perspective on future growth,” he said. “A number of challenges are being addressed to unlock future growth and we are innovating in capital markets and infrastructure.”

Last year State Street Global Advisors launched the first passive global convertible bond ETF, which was listed on the Deutsche Börse, and last month launched a multi-asset global Infrastructure ETF.

“There is demand for fixed income but we are also innovating in products which cover new asset classes as well as ETFs tracking the standard equity benchmarks,” said Young.

Out of State Street Global Advisors’ 65 European listings, 13 use the international structure pioneered by Euroclear Bank, the international central securities depositary. In Europe the same ETF can be listed on a number of national stock exchanges and then have to be settled locally in the national central securities depository of the exchange where the trade is executed.

As a result it is difficult and expensive to trade same ETF across borders i.e to buy an ETF listed on one national exchange and sell it a on a different country’s exchange. The international structure allows settlement through one central securities depositary.

“ETF costs have come down a lot in Europe, but as they decrease further ETFs will be compared not just to other funds but also other tradable assets,” Young added.

Bats Chi-X Europe has today announced new fees for European ETFs. The exchange said as much as €1.5bn is traded in ETFs every day across the continent, with at least twice as much traded over-the-counter.

Th exchange will introduce separate rebates and charges for participants trading ETFs and ETPs in the CXE Lit Book, the exchange’s largest single order-book.

Mark Hemsley, chief executive of Bats Chi-X Europe, said in a statement: “The market is significantly undersized – a quarter of the US’s assets under management and 12% of the value traded in the US – which is a direct result of highly fragmented liquidity and settlement that harm the development of even the biggest ETFs.”

In addition, the company will also beginning offering free ETF listings from next month. Bats Chi-X Europe currently lists five ETFs in Europe including an iShares ETF which was the first to be issued and settled using the Euroclear international structure.

In the US Bats Global Markets last month appointed Laura Morrison as global head of exchange-traded products to grow the ETF business. She was previously at the New York Stock Exchange leading the team which managed ETF listings and trading and the NYSE index business.

Featured image by Klara Viskova/Dollar Photo Club

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