MiFID II Seen As Transformational For ETFs

Shanny Basar

Brian Healy, director of traded markets, development, operations at the Irish Stock Exchange said new European Union regulations will transform the European market for exchange-traded funds and spur growth.

Brian Healy, ISE

Healy gave a presentation at the annual ETF Investment Outlook Conference held at Grant Thornton in London today. MiFID II, the regulations which came into force this month, require ETF trades to be reported, increasing transparency in a market where approximately 70% of trading volume is over-the-counter.

“MiFID II is a step change for ETFs. The European market is nascent but has huge potential,” added Healy. “There is an opportunity to increase confidence and spur growth.”

There are 244 ETFs listed on Irish exchange and the country has a 55% of European ETFs by domicile according to Healy.

He noted that Europe has approximately 2,300 ETFs, the same number as the US, but the US has four times as many ETF assets under management. Europe has just over $800bn (€655bn) in ETF assets while the US has $3.2 trillion.

ETFGI, the independent research and consultancy firm, reported last week that assets invested in ETFs and ETPs listed in Europe increased by 40.1% last year to reach a new high of $802.4bn in assets under management.

“There is huge growth potential and an opportunity to drive down the total expense ratio,” said Healy. “There will be developments in ETF lending and for more efficient management of collateral, which we are working on with Euroclear and Clearstream.”

His noted that European ETF assets increased by 40% last year and included 40 first-time issuers.

ISE demerged from the London Stock Exchange in 1995 and made a strategic decision to list funds. Healy said the exchange is now the number one venue globally for funds, with more than 5,000 listings, and also for bonds, with more than 31,000 listed.

In November last year Euronext, the pan-European exchange operator, announced it was acquiring the ISE for €137m, and the deal is due to close in this quarter.

Deirdre Somers, chief executive of the Irish Stock Exchange, said in her 2017 review: “Euronext is highly complementary to the ISE. Our role as the group centre of excellence for listing debt, funds and ETFs within their federal model and the development of innovative services for equity issuers and SMEs is hugely exciting for our future.”

The ISE also does not have any derivative products. Euronext plans to launch a suite of Irish derivatives, particularly for the agricultural sector, which is important for the Irish economy.

The Irish exchange is also working with Euroclear to create an Irish central securities depository following the UK’s decision to leave the European Union. Trades are currently settled by Crest, a CSD operated by Euroclear UK & Ireland out of London.

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