It has been another year of extraordinary growth for Tradeweb Europe says Adriano Pace, (pictured) managing director for equity derivatives for the firm.
Tradeweb has executed over EUR150 billion in European-listed ETFs so far in 2017, an ongoing rate increase of 28 per cent over the same period in the previous year.
“It’s been another year of solid growth for our European ETF platform,” Pace says. “Platform activity in the second half of 2016 was driven by two big macro events, Brexit and the Trump election, but this year traded volumes have been steadier throughout.”
Pace reports that the 28 per cent increase is probably equally balanced between new clients who were not previous users of Tradeweb, and existing clients, who are either more active, or where the proportion of the business they dedicate to the platform has increased.
The client types remain the same, large institutional traditional asset managers, and so one could deduce that there is increased adoption of ETFs among this type of buy-side firms.
Drivers among those investors over 2017 and into 2018 include preparing for MiFID II, what Pace describes as ‘the inescapable cloud hanging over the industry’.
“It’s a very important regulation and very positive for ETFs as it introduces a level of transparency to the market that didn’t exist before,” Pace says.
“A lot of our clients have had to prepare and make sure they have a trading solution in place. Tradeweb is a regulated trading venue, a multilateral trading facility, which means that we are responsible for any pre- and post-trade transparency requirements.”
Pace says the new rules require significant effort to ensure the platform is fully compliant. “Our preparation alleviates the burden for our buy-side clients and sell-side dealers; and additionally, it helps to reduce any regulatory uncertainty on behalf of our users.”
A buy-side client using Tradeweb to send RFQs out to dealers no longer has to worry about whether or not they have to report under MiFID II, as the firm takes regulatory responsibility for every single trade executed on the platform.
“Our clients have had it in their sights for a while, and their desire to be compliant will kick in before the third of January.”
Another driver for this year’s record performance has been demand for richer analytics and more statistical content pre-trade, to help clients decide how to execute.
“They have access to a wide pool of liquidity providers, and so we have focused a lot of our attention on helping them decide who to send RFQs to, and to be smarter in dealer selection.
“We have had a real increase in the number of dealers sending live axes, advertising their interest to buy or sell a particular security to clients when they’re about to trade.
“We have a regular group of 15 or more liquidity providers (market makers and banks) supplying us with any number of ETF axes, with up to 20 dealers posting hundreds or even thousands on a typical day.”
Tradeweb also now facilitates pre-trade transparency, enabling their clients to look back at the performance of each dealer within each category of ETFs.
“The ETF world is very heterogeneous,” Pace says. “We categorise ETFs into specific groups by issuer and asset class, and then again further segment them into particular sectors within those asset classes.
“What that does is offer them a 90-day look back at the performance of each dealer in each category, within the trading ticket and at the point of execution. It’s very transparent and while some dealers are stronger in certain categories, the reason why we did this is to highlight that you can be extremely good in some areas but maybe not in others – every dealer has pockets of strength.”
Another growth area is an increase in automated intelligent execution – a tool which essentially involves little or no human interaction to conduct a trade.
“The integrated network we have developed allows clients to dictate to Tradeweb how they would like a trade to occur if it were automated. We can satisfy those requirements with the same quality of pricing, automatically fulfilling them if the prices coming back from the dealers are at the pre-defined level or better. This relatively young functionality is now available across a number of our platforms, and it has seen dramatic growth this year.”
Finally, Tradeweb has also seen further expansion in US ETFs. Pace says: “We have been running our US ETF platform for a couple of years and it shows continued signs of development in terms of activity, clients using it and dealers providing liquidity on it. It’s not just a European story; we started in Europe but quickly determined that the US market would also be of interest.”