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Trading ETFs more complex than equities, says ITG’s Barriball


Interviewed by etfexpress back in 2016, Simon Barriball had spent two years as Managing Director, Head of Exchange Traded Products at agency broker ITG, charged with building a high touch ETF trading desk for its European institutional clients. 

The motivation at the time in setting up the desk was to deal with two issues that Barriball felt clients faced in Europe: a lack of transparency on trading due to a lack of trading reporting which made it difficult to gauge trading costs, and the fact that the market was very fragmented with roughly 70 per cent traded off-exchange.

Interviewed now, Barriball says that trading ETFs is more complex than trading equities.

“Where there is complexity in trading there is a role for a broker to provide improved execution and advice. As an agency broker we are ideally positioned to do that as we are free from the conflicts of interest that can exist within proprietary brokers who are running principal positions,” he says. “We add value to our clients through un-conflicted advice and enhanced execution. I enjoy working with my clients to build highly trusted and transparent working relationships that deliver improved outcomes. As an agency broker you only do well if your clients do well and I find that dynamic very rewarding.”

Barriball reports that he continues to see new clients trading ETFs for the first time, mostly as they become more aware of the cost-effective exposures that ETFs can provide.

“Additionally, clients who currently trade ETFs are increasing the use and variety of products they trade as they become more comfortable with the performance and trading of these products,” he says. “Institutions also continue to evolve how they use ETFs. For example, we are increasingly seeing clients use passive ETFs as low-cost building blocks of even active portfolios by means of actively allocating funds to a basket of low-cost passive ETFs.”

Turning to market liquidity in ETFs, Barriball comments that as the total AUM of ETFs increases so does secondary market trading, which provides liquidity for the market both in terms of on primary exchanges and Request for Quote (RFQ) Multi-lateral trading facilities (MTFs).

“Additionally, the number of participants in the market looking to provide ETF pricing both on exchange and on RFQ MTFs continues to increase as the AUM increases,” he says. “This provides a further boost to total market liquidity. The growth of the ETF market acts like a positive feedback loop, a larger market attracts more participants which provides more liquidity and, in turn, makes the market more attractive to investors.”

Barriball’s clients are a broad cross-section of the investor universe, so the ETFs they are trading into and out of are in-line with the broader market flows on a day-to-day basis.

However, he says: “In a more general sense we are seeing the use of certain types of ETF increase and so far this year we have seen a significant increase in the use of Fixed Income and ESG/SRI ETFs.”

Since his last interview with ETF Express, Barriball reports that his business has continued to see very strong growth. “The enhanced requirements within MiFID II on best execution have increased the demands on institutional dealing desks to evidence best execution,” he says.

“As an agency broker with access to exchange liquidity via our own exchange algos and access to a very extensive list of OTC liquidity providers, clients have looked to utilise our abilities to connect them to liquidity they are often unable to interact with directly.

“Additionally, we have seen a significant increase in clients looking for execution advice prior to trading to help them make better informed decisions around the optimal execution strategy. Clients feel more relaxed seeking pre-trade advice from an unconflicted agency broker than they do from any proprietary broker,” Barriball says.

Barriball believes that MiFID II is undoubtedly a positive step for ETFs. “MiFID II requires trade reporting of all ETF transactions as they are now MiFID instruments. This provides far greater transparency around ETF trading in Europe, which is essential in allowing traders to understand the true depth of the ETF market and cost of trading.

“However, collecting the data still requires a lot work. The market needs a consolidated tape to allow this to be done easily and in a systematic way. An easily accessible consolidated tape will in time enhance pre- and post-trade analysis and will shine a light on ETF transactions in a way we have never had before in Europe. This will act as a further boost to the uptake of ETFs across both retail and institutional investors.”

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