With ETFs increasingly becoming more popular in Europe, panellists at TradeTech highlighted fragmentation and regulation as two key pain points that need to be addressed going forward in order to boost growth in the trading segment.
Simon Barriball, Virtu Financial
Simon Barriball, ETF and portfolio trading, EMEA, at Virtu Financial emphasised the detrimental impact the fragmented venue landscape was having on the assets – highlighting the sheer number of listing venues that Europe has for each ETF, as well as multiple sets of currencies and settlement depots. Europe has twice the listings of the US for just a fifth of the AUM, he explained.
“On the regulation side of things, it’s incredibly difficult in Europe to gauge aggregate trading volume as trades are reported across multiple venues, multiple tickets even for the same ETF,” said Barriball. “Post-Brexit, you even have dual reporting in some instances between UK and EU jurisdictions. That data is hugely important for making meaningful pre- and post-trade analytics.
“We need a consolidated tape, which has taken too long. Current proposals look like they don’t really fit what we need for ETF. There’s only top of book data and no venue attribution and obviously the time scale is still really vague.”
The issue of fragmentation in the European ETF landscape was echoed by David Smith, head of ETF sales at SIX Swiss Exchange. He highlighted that fragmentation is an issue that exists in many parts of the financial landscape, felt most keenly in areas like the ETF product segment.
“Investors have different demands – what they want, how they want to trade and settle. However, the result of that is you find dispersed liquidity. It’s difficult to know where to trade and how to trade and that’s clearly a factor why the RFQ protocol has become so popular,” said Smith.
Inevitable comparisons were drawn between European and US markets in relation to ETF at TradeTech this week – a discussion point seen across many of the event’s panels across several other aspects of the European capital markets. Panellists discussed what could be learned from the US and translated into European markets to help improve the landscape here.
“When looking at the US market, they have one very dominant exchange, one dominant clearer and a key currency. However, in Europe, it’s very fragmentated, multiple exchanges and different currencies,” said Ben Miller, vice president, ETF specialist sales, EMEA, at Citi Group.
“A centralised tape would be brilliant and a centralised clearing – in time we could get there – which would really help. Both markets have done a fantastic job of getting institutional adoption. If you were trading $200 million for a US ETF or European ETF, you’re going to get very similar experience.”
Miller added that the US has done a great job at rounding out that ecosystem with retail, adding that retail is seeing some strong growth in Europe and has the protentional to be the main driver for improving the European ETF landscape.
Providing a buy-side viewpoint on the European ETF landscape, Tim Miller, senior trader at Fidelity International, noted that we are experiencing an inflection point when considering ETFs.
Technology is having meaningful impacts on solving issues linked to ETFs in Europe, helping improve infrastructure and the volume of flow on exchange.
Such developments, he argued, will continue to promote growth within this segment of financial markets, helping bring everything together more efficiently.