Fragmentation and regulatory complexity pegged as primary hurdles to European ETF progress

With ETFs more and more rising in popularity in Europe, panellists at TradeTech highlighted fragmentation and regulation as two key ache factors that should be addressed going ahead to be able to enhance progress within the buying and selling phase.

Simon Barriball, Virtu Monetary

Simon Barriball, ETF and portfolio buying and selling, EMEA, at Virtu Monetary emphasised the detrimental affect the fragmented venue panorama was having on the belongings – highlighting the sheer variety of itemizing venues that Europe has for every ETF, in addition to a number of units of currencies and settlement depots. Europe has twice the listings of the US for only a fifth of the AUM, he defined.

“On the regulation facet of issues, it’s extremely troublesome in Europe to gauge combination buying and selling quantity as trades are reported throughout a number of venues, a number of tickets even for a similar ETF,” stated Barriball. “Submit-Brexit, you even have twin reporting in some situations between UK and EU jurisdictions. That knowledge is vastly vital for making significant pre- and post-trade analytics. 

“We’d like a consolidated tape, which has taken too lengthy. Present proposals appear to be they don’t actually match what we’d like for ETF. There’s solely prime e-book knowledge worth attribution and clearly the time scale remains to be actually obscure.”

The difficulty of fragmentation within the European ETF panorama was echoed by David Smith, head of ETF gross sales at SIX Swiss Trade. He highlighted that fragmentation is a matter that exists in lots of elements of the monetary panorama, felt most keenly in areas just like the ETF product phase.

“Traders have completely different calls for – what they need, how they need to commerce and settle. Nevertheless, the results of that’s you discover dispersed liquidity. It’s troublesome to know the place to commerce and easy methods to commerce and that’s clearly an element why the RFQ protocol has develop into so fashionable,” stated Smith.  

Inevitable comparisons had been drawn between European and US markets in relation to ETF at TradeTech this week – a dialogue level seen throughout most of the occasion’s panels throughout a number of different points of the European capital markets. Panellists mentioned what may very well be discovered from the US and translated into European markets to assist enhance the panorama right here.

“When trying on the US market, they’ve one very dominant alternate, one dominant clearer and a key foreign money. Nevertheless, in Europe, it’s very fragmentated, a number of exchanges and completely different currencies,” stated Ben Miller, vice chairman, ETF specialist gross sales, EMEA, at Citi Group.  

“A centralised tape can be sensible and a centralised clearing – in time we might get there – which might actually assist. Each markets have carried out a incredible job of getting institutional adoption. Should you had been buying and selling $200 million for a US ETF or European ETF, you’re going to get very related expertise.”

Miller added that the US has carried out an incredible job at rounding out that ecosystem with retail, including that retail is seeing some robust progress in Europe and has the protentional to be the primary driver for enhancing the European ETF panorama.

Offering a buy-side viewpoint on the European ETF panorama, Tim Miller, senior dealer at Constancy Worldwide, famous that we’re experiencing an inflection level when contemplating ETFs.

Expertise is having significant impacts on fixing points linked to ETFs in Europe, serving to enhance infrastructure and the amount of move on alternate.

Such developments, he argued, will proceed to advertise progress inside this phase of economic markets, serving to convey every little thing collectively extra effectively.