ETF liquidity provider Flow Traders has published its results from the second quarter of 2016, revealing a quarter-on-quarter improvement in a slower market.
The firm writes that the continued risk-off sentiment in the capital markets translated into declining volumes in equities and increased volumes in the fixed income space. Global investor trading appetite in the second quarter was impacted by macro-economic developments, such as Brexit, the FED rate decision as well as the Japan elections. However, Flow Traders reports that total global ETP assets under management continued to grow, especially in Fixed Income, reaching a new high of EUR 2.9tn overall at the end of the first half of 2016.
For the second quarter Flow Traders saw a quarter-on-quarter improvement in Net Trading Income and Net Income, seeing an improvement in its overall Revenue Capture to 4.8 basis points from 4.3 basis points in the first quarter of the year. The day of the Brexit referendum outcome, June 24, led to a particularly strong day for the company from a trading perspective. The firm writes that all of Flow Traders' trading and risk management systems performed as expected on the day, demonstrating their resilience in exceptionally high volume circumstances. The company also found that the RFQ platforms for off-exchange trading also proved to be an efficient medium to provide institutional counterparties with additional liquidity.
The company will pay an interim dividend of EUR0.55 per share. The results for the quarter in figures show that Net Trading Income reached EUR67.9 million (+5 per cent against the first quarter of 2016) while Global Reported ETP Market Values Traded decreased to EUR 3.54 trillion (-18 per cent versus first quarter 2016) and Global Total Market Value Traded decreased to EUR5.05 trillion (-17 per cent versus the first quarter) while Flow Traders' ETP Value Traded reached EUR141.9 billion (-6 per cent in the first quarter).
The EBITDA margin was 48.5 per cent for the period, against 50 per cent in the first quarter. Net Income for the second quarter of 2016 reached EUR28.7 million, or EPS EUR0.62 (+23 per cent against the first quarter). This includes a one-off tax benefit of EUR4.5 million in relation to the IPO costs. Revenue Capture reached 4.8 bps in the second quarter, up 0.5 bps versus the first.
In terms of the first half, Flow Traders saw Global Market ETP Assets under Management grow to EUR2.9 trillion (USD3.2 trillion), the highest level on record, while Global Total Market ETP Value Traded grew to EUR11.1 trillion with an 11 per cent increase versus against the first half of 2015.
Flow Traders' ETP Value Traded reached EUR293 billion in the first half of 2016, down 5.3 per cent from the first half of 2015, with the firm commenting that investors continued to prefer highly liquid products given the current macro-economic situation. Net Trading Income (NTI) was EUR132.5 million in first half 2016, down 10 per cent against the first half of 2015. Revenue Capture was 4.5 bps in the first half versus 4.8 bps in first half 2015. The firm writes that trading activity continued to show similar pattern as in the first quarter of this year until Brexit, when flow centralised around highly liquid, mainstream products in times of heightened uncertainty.
For the first half of 2016, EBITDA Margin came in at 49 per cent versus 52 per cent in the first half of 2015 as expenses increased, driven by an increase in data connection costs since the second half of 2015. Net Profit was EUR51.9 million in the first half, versus Adjusted Net Profit of EUR60.7 million in the first half of 2015 (Unadjusted Net Profit in the first half of 2015 stood at EUR30.7 million).
The first half of 2016 saw EPS standing at EUR1.12, taking into account one-off write downs in the first quarter and including a one-off tax benefit in the second quarter of 2016 in relation to the 2015 IPO costs. The firm writes that FINRA membership enables roll-out of institutional trading in the US later this year.
Dennis Dijkstra, co-CEO of Flow Traders says: "Flow Traders delivered a strong performance in 2Q16. We continue to roll out our growth strategy across the globe with particularly pleasing results coming from the EMEA and the Americas regions, despite a relatively weak market environment. In EMEA, we continued to have a high market share, with a strong participation during Brexit. In the Americas, we continued to execute our strategy further and we look forward to implement the new broker dealer on the back of the granted FINRA membership to be able to trade off-exchange with US institutional counterparties. Whilst the Asian markets remained slow, impacting our business as well, we continued to build on our presence here and expect to see the results of that in the near future.
As a result of our performance in 1H16, Flow Traders will pay out EUR 0.55 as an interim dividend which is 50 per cent of net earnings and reflecting our highly cash flow generative business model."
Sjoerd Rietberg, co-CEO of Flow Traders says: "Flow Traders realized a Net Trading Income of EUR67.9 million, up 5 per cent versus last quarter. Our business continued to perform very well in the second quarter of 2016, which was characterised by a rather low trading activity and low volatility for most of the quarter, before the referendum on Brexit. The typical trend we saw in the first quarter of 2016 and the quarters before, with trading concentrated in more liquid products, plain vanilla ETPs with typically tighter spreads, continued, but we saw a change of direction following the Brexit referendum outcome. After the 24th of June, a strong peak in volatility and volumes triggered a lot of trading activity, something we were well prepared for.
“Flow Traders continued to grow in 1H16, in FTEs and number of products traded. Our trading infrastructure operated as expected and the trading team also benefitted from increasing exposure to special events resulting in increased market activity. Overall, we are pleased with the 1H16 results, especially taking into consideration market circumstances, and we look forward to executing on our organic growth strategy, where we expect developments like the FINRA membership in the US and the infrastructural improvements in Asia will help us achieve our goals."
In EMEA, the On- and Off-Exchange ETP Market Value Traded was EUR241 billion in 2Q16 versus EUR266 billion in 1Q16 (-10 per cent), with the company commenting that investors remained on the side-lines ahead of the Brexit referendum at the end of 2Q16. Net Trading Income rose to EUR43.6 million from EUR39.9 million in 1Q16, an increase of 9 per cent, triggered by a higher Revenue Capture. Flow Traders' on-exchange market share remained steady around the 20 per cent.
In the Americas, the On- and Off-Exchange ETP Market Value Traded came in at EUR4,333 billion in 2Q16, versus EUR5,258 billion in 1Q16 (-18 per cent). ETP Value Traded by Flow Traders reached EUR40 billion in 2Q16, from EUR46 billion in 1Q16 (-11 per cent), with Revenue Capture reaching 4.9 bps in 2Q16 from 3.5 bps in 1Q16, as Flow Traders continued to trade in the current product mix, especially around the Brexit referendum. This resulted in a Net Trading Income of EUR19.9 million, a 24 per cent improvement quarter-on-quarter. Market share in the US increased marginally, remaining close to 1.5 per cent.
In APAC, the On- and Off-Exchange ETP Market Value Traded reached EUR479 billion versus EUR541billion in 1Q16 (-11 per cent). ETP Value Traded by Flow Traders came in at EUR8 billion in 2Q16, from EUR9 billion in 1Q16 (-17 per cent), following the deterioration of the overall trading activity, impacting Flow Traders' business as well, the firm says.
Revenue Capture came in at 5.9 bps in 2Q16, a decrease versus 1Q16, reflecting the deteriorating trading activity and the ongoing concentration of flow in highly liquid products. Market share in APAC remained under pressure, but stabilised towards the end of the quarter around 3 per cent. The firm writes that organisational and technological improvements are ongoing and are expected to improve Flow Traders' performance in APAC in the foreseeable future.
Looking forwards, the firm writes that since listing, the ETP market has grown as expected in global Assets under Management, reaching a new top of EUR2.9 trillion at the end of 2Q16, and in number of ETPs listed. “The shift of assets from active management funds towards the passive industry is ongoing, which has had (and, we believe, will have going forward) a strong impact on ETP growth across all asset classes. Independent market sources reiterate the growth potential of the ETP market towards 2020, making clear once more that we are following the right strategy and giving us ample room for further growth in the near future. We will continue to focus on organic growth by increasing our coverage of the ETP space and by optimising our Net Trading Income, while continuing to aim to grow at a faster pace than the growth of the ETP Assets under Management.”