Trading ETFs in Asia: Approaches for accessing liquidity in different market conditions - Part 2

| Equities

In the second of a two-part series on ‘Trading ETFs in Asia’, we examine how best to overcome the challenges when trading ETFs for investors in Asia.


The main challenge faced by Asian-based investors involves the fragmentation of the markets, which manifests itself in a number of different ways, including:

  • A fragmented view of liquidity: One of the main challenges for investors is understanding how liquidity works, especially for European ETFs, because so much is done off-exchange. Whilst the MiFID II reporting obligations for all ETF transactions have helped to shed more light on the full depth of the market, investors are still faced with the challenge of multiple listings in different currencies and exchanges. This fragmentation means that liquidity is spread across multiple exchanges, which makes it difficult to trade on exchange for the entire size required. However, platforms like Tradeweb help to aggregate the liquidity in one place, enabling investors to put multiple dealers in competition simultaneously to achieve the best price. This really resonates with clients, as it allows them to transact their full size, which is often significantly more than what is listed on the past 30-days’ trading volume on-exchange for example. Ultimately, traders achieve multiple efficiency gains from using the Tradeweb ETF platform, which not only expedites the execution process, but also provides more information all in one place to help clients make the right trading decisions.

  • Pre-trade transparency: Recently, there has been large price discrepancy, for instance in the fixed income space, between the net asset value (NAV) of the ETF trades versus the exchange price. This dislocation was quickly steadied after central banks adopted measures aimed at boosting financial markets, including the purchase of bond ETFs led by the US Federal Reserve. Tradeweb clients have access to pre-trade information – embedded within the trade ticket - that can help them make better-informed investment decisions and ensure a better outcome for the end investor. For example, traders can view historical dealer rankings going back 90 rolling days, live dealer axes or indications of interest to buy or sell a certain ETF, and live dealer price streams. Clients have improved price discovery by having all of this information available to them in a single location, and by easily comparing at all times where they can trade versus the exchanges.

  • Regulation: Unlike Europe, where the European Securities and Markets Authority (ESMA) oversees the regulation of financial markets, there is no similar overarching body for the Asia region as a whole. Each country is very much an independent entity, which makes it very difficult for traders to manually streamline any trading strategies or rules. It also makes for a complicated task to navigate the myriad of rules and regulation for different products, as opposed to the European passporting system, which allows the listing of one ETF on multiple exchanges without any additional significant costs or challenges. By using Tradeweb, clients are better able to automate workflows with a view to improve operational efficiency, information processing and adhere to regulatory standards.


Multiple options to help navigate turbulent markets
It is critical during times of uncertainty that markets operate reliably and efficiently. Tradeweb’s multi-asset class and multi-protocol electronic offerings have been helping our clients find the best approach to adapt to these tumultuous times. Innovative mechanisms of processing ETF transactions have also proven useful, particularly when managing higher numbers of RFQs.

For example, investors have been using our Automated Intelligent Execution (AiEX) solution to automate their trading process, by pre-programming sets of execution rules according to their individual strategies. They can also queue up orders for AiEX to execute at their preferred time via our time-release feature. Meanwhile, we recently extended our Transaction Cost Analysis coverage to ETFs, providing clients with insight into their trading patterns and helping them ensure adherence to their best execution policies.

As the Asian ETF market continues to grow, we very much look forward to continuing to support our clients by listening to their pain points and developing functionality that further enhances their overall execution experience.

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