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Mifid II promises a new era for European ETF trading

by Emma Dunkley on Dec 28, 2012 at 07:00


Consolidation game

Earlier in the year, BlackRock partnered with Bloomberg to offer a consolidated tape, albeit only for iShares ETFs, allowing investors to see the best bid and offer prices and liquidity. The partnership means iShares can use Bloomberg’s European tickers, which aggregate volume and trading data for reported iShares ETFs across European exchanges.

Consequently, there are a smaller range of tickers – about 500 instead of 1,400 – from which investors can see trading information in each currency. In the past, for example, investors would have to look at the iShares S&P 500 in every different currency across every venue to determine the total trading volume.

However, although this consolidated view will be beneficial, it only applies to iShares ETFs and does not take into account OTC trades. As Fuhr says, having these OTC trades reported is essential, especially as the market is moving more towards retail investors.

‘It’s a big deal, because people are afraid to ask questions if they feel they should know the answers. They are afraid to ask what is liquidity and when they see low, on-exchange volumes it puts them off,’ adds Fuhr. ‘It’s a stumbling block now for greater usage.’

Furthermore, having greater visibility of trading will boost competition among ETF issuers as they will fight to offer the tightest spreads, ultimately benefiting the end-investor. As industry proponents say, liquidity begets liquidity, so the more ETFs are seen to be traded, the more investors will want to trade them.

There are also other measures coming through to improve trading. Tradeweb, for example, has just launched a multi-dealer platform for trading ETFs listed in Europe. The platform is designed to accommodate bigger OTC trades with competitive pricing.

It provides investors with access to a consolidated pool of liquidity for the entire range of European-listed ETFs, while a number of market-makers compete to get the best price. At present, there are 11 dealers providing liquidity to the marketplace.

Enrico Bruni, head of European markets at Tradeweb, says: ‘Proving best execution is increasingly important for our institutional client base and we expect this requirement will continue to be a focus in upcoming Mifid II regulations. Electronic trading helps asset managers meet best-execution requirements.’

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