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Tradeweb’s US ETF platform sees record volumes


A new white paper from Tradeweb, the fixed income, derivatives and ETF trading platform, highlights the rise of US institutional use of ETFs.

The paper reports that market participants are beginning to leverage new technology to improve their access to liquidity through disclosed, request-based platforms where multiple liquidity providers compete on price for ETF block and NAV trading.

To work larger size transactions in fixed income, institutional investors have traditionally used request-for-quote (RFQ) trading to gain optimal pricing, access to liquidity and immediacy in execution.

Tradeweb writes that RFQ trading also delivers an optimised workflow for straight-through-processing, and automated reporting to meet best execution and compliance requirements.

The firm believes that RFQ trading will accelerate the adoption of ETF trading by institutional investors by supporting market structure that delivers better access to liquidity, more competitive and transparent pricing, and an efficient workflow.

Tradeweb opened ETF trading in the US in the first quarter of 2016 and has since executed more than USD24 billion notional volume on its electronic RFQ platform.

Adam Gould, (pictured) head of US equity derivatives at Tradeweb, explains that the firm now has 20 market makers trading with more than 135 clients, with average trade size exceeding 135,000 shares in the third quarter of 2016.

“The number of clients using the platform continues to increase – the offering is growing quickly,” Gould says. “There are three main drivers responsible for the rapid client adoption: we put multiple liquidity providers in competition which results in better pricing, we streamline the trading work flow from a price gathering and operational perspective and provide robust best execution metrics and a full audit trail, which is becoming more important in the world we live in.”

The client base is growing and is diverse: it includes a large number of traditional asset managers as well as a number of registered investment advisers and ETF fund of funds.

The RFQ trading protocol is something of a Tradeweb speciality, having built up a significant business in fixed income trading through RFQs. The system brings in liquidity and as Gould says: “The more liquidity providers competing on price, the better it is for the end user in terms of getting a good execution.”
Between 12 and thirteen of the providers of liquidity for the ETF platform are usually banks and the balance are ETF market makers.

“On our platform, we also pull in exchange prices so everyone can use that as a reference. Depending on how liquid the underlying index is, and how volatile the market is, generally speaking, ETFs are a fairly liquid product,” Gould says. “And with the RFQ trading we offer, it’s becoming more liquid still. The ETF marketplace has created a number of opportunities for investors to gain exposure to various asset classes and strategies via a new investment product. We see a diverse group of clients in the US, including a number of clients who are based in Europe and using the US platform for exposure to US ETFs.”

Tradeweb is also seeing a number of its fixed income institutional clients using ETFs because they can obtain exposure to various bond indices through the ETF wrapper, and with the same protocol and platform with which they are familiar. The most liquid ETFs see over 10 million in average daily shares traded; less liquid, between 5 and 10 million; Illiquid is between one and five million and rarely traded sits at less than one million.

Tradeweb’s white paper concludes that electronic RFQ trading has, and will continue to, help realise the ongoing growth of ETF trading.
“By offering new levels of transparency and operational efficiency to the institutional community, ETF investors are enabled by a more effective means of accessing the scope and scale of liquidity they need.”

To view the full paper, please click here.

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