Understanding ETF Liquidity and Trading

Transcription

1 Understanding ETF Liquidity and Trading Paul Amery, Moderator Editor Lisa Dallmer, Panelist Executive Vice President Global Index and ETPs, NYSE Euronext Keshava Shastry, Panelist Head of Secondary Markets ishares Jan de Bolle, Panelist Head of Business Development Flow Traders B.V.

2 Index and Exchange Traded Products Lisa Dallmer Executive Vice President, Global Index and Exchange Traded Products

3 Market Model Overview ETFs may trade on several different types of trading venues: Listed exchange aka the Primary Exchange and a regulated market place Multilateral trading facilities (MTFs) which have unlisted trading activity (lighter regulation) Dark pools, which offer alternative liquidity aggregation venues without exposing the order to a public quote

4 Market Model Overview Exchange monitored and obligated performance produces a tangible and valued experience for investors. Lead Market Maker Program (LMM) exists for NYSE Arca in the U.S, while the Liquidity Provider Program (LP) exists for NYSE Euronext in Europe LMM Program: Exchange & Issuer arranges for a single LMM to support each allocation LP Program: Exchange & Issuer can arrange for multiple LPs to support each allocation

5 Market Model Overview Exchange monitored and obligated performance produces a tangible and valued experience for investors. LMMs and LPs aid the process of price discovery through providing publicly displayed quotes - Exchange monitored performance - Required to quote continuously at prices relevant to the ETF s underlying portfolio, thus reducing costs for investors looking for exposure to the basket (but find it too expensive to assemble themselves) - LMMs and LPs are also required to be part of the Opening and Closing auctions; a critical function in pricing marketable order flow - The indicative match price, indicative match volume and auction imbalance are all continuously calculated and disseminated allows for real time price discovery and transparency - Slippage for the closing auctions is minimal at 20 bps due to this model

6 Market Quality Comparison: US listed ETFs Relationship between low volume ETFs and ETFs with wider spreads has often been misrepresented Volumes are an indicator of activity, but spreads are an indicator of the ease of pricing and risk taking The implicit cost of quoting for LMMs is higher for international products than domestic, leading to wider spreads The LMM model on NYSE Arca produces tighter spreads & greater quoted depth than trading venues with no obligated LMM NYSE Arca Listed Domestic ETFs: First Half 2009 Source: Arcavision.com CADV Spread Depth Share Market Share Quintile NYSE Arca NASDAQ NYSE Arca NASDAQ NYSE Arca NASDAQ % 0.05% 21,252 20, % 33.40% % 0.18% 1,891 1, % 21.60% % 0.50% 2,428 2, % 16.30% % 0.90% 1,889 1, % 13.30% % 1.06% 1,989 1, % 12.80% NYSE Arca Listed International & Non-U.S. Treasury/Agency Fixed Income: First Half 2009 CADV Spread Depth Share Market Share Quintile NYSE Arca NASDAQ NYSE Arca NASDAQ NYSE Arca NASDAQ % 0.08% 12,087 10, % 22.40% % 2.16% 2,256 1, % 6.90% % 3.77% 2, % 4.80% % 4.95% 2, % 5.30% % 7.05% 1, % 4.90%

7 Market Quality Comparison: Europe listed ETFs The Exchange monitored LP model allows for tighter spreads and larger depth on NYSE Euronext Trading venue fragmentation has its search costs, a agency order cannot risk multiple fills and thus cannot be represented everywhere Interpretation of best execution varies, and the lack of forced interconnected markets results in non-protected quotes The number of LPs in Europe has increased, in part as a result of the new trading technology and faster data feeds Month BATS Chi-X Lyxor ETF Cac40 Spread (bps) Depth (euro per side) Volume (Euros) NYSE Euronext BATS Chi-X NYSE Euronext BATS Chi-X Source: Arcavision.com NYSE Euronext Jun , , ,313 4,930,739 35,681, ,285,808 Jul , , ,889 1,905,503 13,101, ,853,935 Aug , , ,015 3,030,697 32,192, ,337,670 Month BAT S Lyxor ETF Euro Stoxx 50 Spread (bps) Depth (euro per side) Volume (Euros) Chi-X NYSE Euronext BATS Chi-X NYSE Euronext BATS Chi-X NYSE Euronext Jun , , ,534 10,568,733 67,609, ,355,233 Jul , , ,127 11,863,689 29,844, ,930,507 Aug , , ,887 21,045,685 48,840, ,124,322

8 Legal Disclaimer Cautionary Note Regarding Forward-Looking Statements This presentation may contain forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Such forward-looking statements include, but are not limited to, statements concerning NYSE Euronext s plans, objectives, expectations and intentions and other statements that are not historical or current facts. Forward-looking statements are based on NYSE Euronext s current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause NYSE Euronext s results to differ materially from current expectations include, but are not limited to: NYSE Euronext s ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk and U.S. and global competition, and other factors detailed in NYSE Euronext s reference document for 2008 ("document de référence") filed with the French Autorité des Marchés Financiers (Registered on April 28, 2009 under No. R ), 2009 Annual Report on Form 10-K and other periodic reports filed with the U.S. Securities and Exchange Commission or the French Autorité des Marchés Financiers. In addition, these statements are based on a number of assumptions that are subject to change. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by NYSE Euronext that the projections will prove to be correct. This presentation speaks only as of this date. NYSE Euronext disclaims any duty to update the information herein.

9 Secondary Market Trends Keshava Shastry Head of Secondary Markets ishares

10 2007 vs 2008 vs All recorded volumes 900, , , , , , , , , $ Mio 2009 USD volume > 35% increase YoY

11 European ETF providers by secondary market volume 2009 secondary market trading volumes ETF Securities 5% Xact 6% Others 12% ishares 36% Family Weight (%) ishares 36.73% Lyxor 21.05% db x-trackers 20.18% Xact 5.62% db x-trackers 20% ETF Securities 4.53% Others 11.88% Lyxor 21% Source: Blackrock, Bloomberg, Deutsche Boerse as at 31 December 2009

12 Equity, Futures Turnover sharply down European equity and futures turnover ( m) 2, , , , , , Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 STOXX 600 Turnover EURO STOXX 50 futures Notional Source: Bloomberg, BlackRock

13 ETP Market Share Growth Continues European ETP market share 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Source: Bloomberg, BlackRock ETF Turnover as % of market turnover

14 Market Trends Volumes and Spreads in ishares MSCI Emerging Markets fund (Amsterdam listing) $900,000, $800,000, $700,000,000 $600,000, $500,000, $400,000, $300,000, $200,000,000 $100,000, $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 0 ADV Spread (Euronext Line - bps) Source: Bloomberg, One Tick

15 Secondary market efficiencies ishares FTSE 100 LSE Spreads Basis points Jul-08 Aug-08 Sep-08 Nov-08 Dec-08 Feb-09 Mar-09 Apr-09 Jun-09 Jul-09 Source: Bloomberg, BlackRock, Citigroup ETF Underlying

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17 Managing Liquidity Jan De Bolle Head Business Development Flow Traders BV

18 Managing liquidity is increasingly complicated Eurostoxx 50 listings in Europe

19 Managing liquidity is increasingly complicated - ETF market is often bigger than the futures market - Inventory Management: inefficient post-trade infrastructure - Borrowing & Lending market is hard to access - Exchange Membership: ongoing effort - The need for speed: hardware & software - The efficient frontier?

20 Contact details Jan De Bolle Tel Mob jdb@flowtraders.com

21 Understanding ETF Liquidity and Trading Paul Amery, Moderator Editor Lisa Dallmer, Panelist Executive Vice President Global Index and ETPs, NYSE Euronext Keshava Shastry, Panelist Head of Secondary Markets ishares Jan de Bolle, Panelist Head of Business Development Flow Traders B.V.