2016 was a momentous year for the Tradeweb European-listed ETF marketplace. Enrico Bruni (pictured), managing director and head of Europe and Asia business at the company says: “The platform had another record-breaking year, which may be an overused expression, but in this case it really does apply.”
Last year, Tradeweb saw notional volume in European ETFs surpass EUR134 billion, an increase of 19 per cent on 2015. More than EUR38 billion was executed in the fourth quarter alone, after a post-US election November surge in activity.
“We’ve consistently observed the strength of the ETF franchise itself and of our platform specifically in times of heightened market activity,” Bruni says. “The volatility that followed the US election was explosive, but the ability of the platform to absorb liquidity when demand was high remained exceptionally good.”
Quality and certainty of execution are two key characteristics of the Tradeweb ETF marketplace that set it apart from its competition. The features on offer mean that the increase in business has kept up, with January 2017 proving to be the busiest month since the firm launched its European ETF platform, with over EUR15.3 billion in traded activity. Tradeweb has also seen very good pick-up from European investors on their US platform, with about 10 to 15 per cent of the overall US turnover coming from Europe.
One of the drivers behind Tradeweb’s success in the ETF space is the rising popularity of the product itself. Assets under management in ETFs have continued to expand, as they are being increasingly used not just as a passive investment vehicle, but also as a pure trading product, Bruni says.
“Investors rely on ETFs to manage risk or take macro exposures. The resilience of the platform coupled with the expansion of our customer base provides an easy way to tap the liquidity available,” Bruni says.
For Tradeweb, a crucial part of their strength comes from the community of market makers, who step up to the task of providing liquidity in ETFs electronically. There are currently 27 dealers for European ETFs on Tradeweb, ranging from larger banks to specialised independent firms, and that number is expected to reach 30 by the end of the year.
Bruni reports a dramatic shift in the types of investors using ETFs in Europe. “We experience a variation in the mix of customer types,” he says. “First of all, we have the traditional players, including asset managers and hedge funds. However, we’ve starting to receive enquiries from new types of investors, such as retail aggregators and the robo-adviser community, who are increasingly looking at ETFs as their main investment vehicles.”
“This community developing right now is a very important one for us. Efficiency is vital to their business model, and electronic trading enables them to automate their execution.”
Tradeweb has been focusing on full automation of execution with the creation of OMSX, a rules-based order execution functionality, which allows the buy-side to set bespoke parameters for trading smaller-value tickets. The tool dictates how orders are directed and executed, so that clients can concentrate on higher-value business.
Tradeweb is also building up its pre-trade information with a landing page for ETFs, where customers can obtain a complete view of platform activity to help them make better-informed investment decisions. In addition, last year the firm introduced pre-trade information embedded within the trade ticket, including dealer track records, hit rates by either volume or number of trades, as well as most recent trades and axes.
“MiFID II rules will highly impact ETFs, which are considered equity-like instruments and will be subject to stringent transparency requirements. We believe that our RFQ platform will provide an environment where the transition to a MiFID II regulated world will be facilitated, both by buy-side and sell-side customers,” Bruni says.