European ETFs enjoy a trading boom

Darren Sinden

For Europe as a whole ETF turnover rose by an average of 46% in 2020 to stand at just under €683 billion, or $828 billion

Surveillance among Tier 1 market participants

Trading in European listed ETFs has experienced a sharp upturn last year.

The London Stock Exchange saw a 50% rise in the volumes of ETFs that are traded on its SETS order book system. The combined value of ETFs, ETNs and other ETPs, traded using the system, rose to £154.80 billion in 2020.

The rate of growth in the turnover of these exchange-traded products far outstripped the growth of the wider LSE markets as a whole, which grew by just 5.90% year over year, when compared to 2019.

Frankfurt-based Deutsche Borse saw its ETP turnover jump by an even larger 58%, during 2020. The notional value of ETPs traded on its Xetra platform reached €214.40 billion. The 58% growth rate compared very favourably to that of equity trading which saw its turnover grow by just 22.60% over the course of 2020.

For Europe as a whole ETF turnover rose by an average of 46% to just under €683 billion, or $828 billion, according to data from one of the worlds largest ETF managers BlackRock.

The asset manager saw a rise in interest in Eurocentric ETFs on a global basis and total turnover in these instruments reached a value of $2.80 trillion. Europe’s ETF market has continued to expand of late though it still plays second fiddle to that of the USA.

ETFs are increasingly being used by institutional investors who want to make instant asset allocation or place thematic trades. These institutions are also increasingly happy to execute those trades on exchange rather than approaching an Authorised Participant (AP), effectively an ETF market maker, to make a request for quotation (RFQ) for their proposed trade.

That enhanced use of on-exchange trading is seen as a sign of developing maturity in the European ETF markets.

In the US 60% of ETF transactions are executed through an exchange, rather than over an MTF or RFQ system.

Authorised Participants can make or break ETFs to facilitate off-exchange transactions, but ETF traders can also attempt to complete their business on an exchanges order book platform. Which may offer more flexibility than the fixed, take it or leave it quote, they may get for an off-exchange trade from a market maker.

Trading on the exchange also has the advantage of the trade being centrally cleared and settled, which helps to reduce counterparty risk when compared to OTC or off-exchange trades. Which are settled bilaterally between the buyer and seller of the ETF.

For an active ETF trader, central clearing and settlement can offer cheaper or reduced funding liabilities and balance sheet efficiency.

In terms of the most popular products, the top three ETFs traded in London during 2020 were: CSSPX the iShares Core S&P 500 UCITS ETF, ISF, the iShares Core FTSE 100 UCITS ETF and IGLN the iShares Physical Gold ETC, or exchange-traded commodity.

At the end of 2020, there were 1603 ETPs listed on the London Stock Exchange and 1618 issues listed on Deutsche Borse.

Among the most recent additions to London’s listings is a range of single name, leveraged ETFs. which allow traders to take a geared view on the price-performance of individual equities. The managers of these products believe they are an exchange-traded alternative to CFDs.

For example, tickers AMZ2 and 2AMZ offer a two times leveraged long exposure to the price of Amazon in either dollars or sterling. Whilst tickers AMZS and SAMZ offer a one times levered short exposure to Amazon, in those respective currencies.

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