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Find out how Tradeweb became a leading market player for U.S. ETFs in less than 2 years

By Traders Magazine


It all began two years ago.

Tradeweb, one of the world’s leading electronic trading platforms entered the U.S. ETF market in 2016 and has never looked back. The firm’s ETF trading platform connects institutional investors to OTC markets in U.S. ETFs and has become a leading player in just two years.

Building on the success of their sister ETF platform in Europe, Tradeweb’s U.S. ETF offering complements the firm’s broader, well-established institutional trading platform – which has expanded substantially from its start 20 years ago as a bond-trading platform to provide over 25 markets across multiple asset classes. Tradeweb pioneered the multi-dealer, in-competition request-for-quote (RFQ) protocol for the electronic trading of U.S. treasuries and the RFQ protocol has now proved it can unlock ETF liquidity for institutional investors.

Booyah for the buy-side as it continues to search for alpha and more efficient ETF execution. And the ETF sector is booming, as Deutsche Bank Asset Management reports the market has swelled to $4 trillion from just $1 trillion in 2008.

And Tradeweb stands ready to meet this growing demand from institutional investors. In just two short years, Tradeweb has seen ETF trading on its U.S. electronic platform grow and grow. Back in 2016 at the platform’s inception, notional value of executions totaled $2 billion in the first quarter of 2016 and has grown steadily every quarter since to over $22 billion in the first quarter of 2018. More than $110 billion in U.S. ETFs has been executed on Tradeweb by over 100 buyside institutions. For a new entrant in the U.S. ETF market this rate of growth is impressive.

In speaking to Traders Magazine, Adam Gould, Head of U.S. Equity platforms at Tradeweb explained the rapid growth. “We launched our platform in early 2016 by expanding Tradeweb’s RFQ model to U.S. ETFs. At the outset, we had 6 liquidity providers which quickly grew to 22 as the buy side embraced our offering as a more efficient way to access competitive liquidity as well as streamline their workflow and demonstrate best execution”.

Gould explains how it works “in our platform clients can come in and request a one-way or a two-way market on any U.S. ETF and choose to execute either on risk, NAV or market-on-close. They simply submit one trade ticket to send multiple price requests to up to five liquidity providers simultaneously. It’s this competition between liquidity providers that creates aggressive pricing and efficient access to liquidity for block trades."

The whole process is efficient and economical – just what the buy-side wants.

“Previously, if traders wanted a market on a big ETF trade, they’d either pick up the phone and call two or three dealers or go into chatrooms which is inefficient, lacks price transparency and makes proving best execution difficult,” Gould recounted. “Or they trade it on exchange. But with big size that leaves a footprint. Our platform offers a very clean way to get competitive prices back extremely quickly without alerting the market. And by streamlining the ETF execution process with full OMS integration and straight through processing desk efficiency goes up."

“Another key driver of adoption has been the electronic trading records the platform creates which demonstrate best execution by putting time-stamped prices from each liquidity provider, best on-exchange pricing and final execution price side by side, making compliance clear."

Gould added “the comprehensive pre-trade price discovery it enables has also resonated with the buyside.  Pre-trade you can see real-time, directional liquidity provider axes and a feed of the exchange National-Best-Bid and Offer (NBBO) displayed on the ticket. At-trade most liquidity providers auto-quote providing instantaneous off-exchange market pricing plus the NBBO for comparison."

And growth in the ETF market shows no signs of stopping. According to the latest ETF report from State Street Global Advisors, despite posting outflows in two of the first three months of 2018, the ETF industry is still off to its second-best start to a year on record. Interestingly for the third consecutive month, fixed income inflows outpaced those of equities, with the segment adding $15 billion in April versus $10 billion into equity ETFs representing the second-highest monthly inflows for fixed income ETFs ever.

With Tradeweb’s fixed income and RFQ heritage plus growth in fixed income ETF usage “Tradeweb is natural choice for our fixed income clients,” Gould said “but we’re also on-boarding a lot of equity clients that are new to Tradeweb and new to RFQ - it’s extremely exciting to see the worlds of fixed income and equities trading intersect and overlap.”

Tradeweb’s Gould is optimistic about the future and the value Tradeweb can bring to the market by helping the buy-side access better quality liquidity quality in ETFs. “Clients’ value different things, price might be more important to one, best execution or integration to another but whatever the need we’ve put the pieces together to simply provide a better way to trade ETFs."