Increasing ETF trading efficiency with Tradeweb pre-trade transparency

European investors‘ appetite in exchange-traded funds (ETFs) remains healthy. Combined assets for European ETFs and exchange-traded products (ETPs) have steadily risen in recent years, reaching a new record of U.S. $567 billion at the end of Q3 2016 (ETFGI). Similarly, analysis of activity on our European-listed ETF marketplace shows substantial growth in trading volumes. During the first three quarters of 2016, total notional executed on the platform surged to EUR 96.1 billion, marking a 15 per cent increase over the same period last year.

The rapid growth of ETF assets in Europe, where a significant proportion are traded over-the-counter (OTC), and the instruments‘ increasing popularity among institutional investors makes the availability of pre-trade data information an imperative. Bringing additional pre-trade transparency to the OTC environment would not only assist  institutional investors  in making more informed trading decisions, it also helps them achieve their best execution requirements under MiFID II.

Multi-dealer electronic execution venues, such as Tradeweb, believe that by enhancing the trading infrastructure of the European ETF market support greater institutional adoption and growth of ETFs. With this in mind, we introduced trade data reports and dealer axes to our ETF platform early last year to increase transparency and understanding of market liquidity.

This year, we went a step further by introducing both client and dealer statistics within the trade ticket. Previously, institutional investors had to piece together information from multiple sources or log into other systems, a time-consuming process. Now, Tradeweb presents clients with a complete picture of dealer track records integrated right into the ETF trading workflow, resulting in more efficient, seamless and intelligent execution.

For every single ETF listed in Europe, Tradeweb clients are able to view hit rates by either volume or number of trades, recent trades, and recent axes as they determine how best to work orders. The data is grouped according to issuer, asset class and sub-asset class, allowing for a more granular evaluation. For example, investors can see which dealers have recently traded or sent axes for the instrument they wish to buy or sell, alongside an overview of user-specific or company-wide hit rates. 

As well as improving the execution experience, the new service provides the clear evidence and rationale for selecting a particular dealer during a trade enquiry to help prove best execution. A more data rich pre-trade environment means traders can quickly and precisely select the dealers most suited to their enquiry.  

With MiFID II just over a year away, and research from Greenwich Associates highlighting that 20% of ETF users expect to increase their allocation in the next few years, the introduction of additional transparency to ETF trading could not come at a better time.