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GTS’s Browne expects big things from options embedded ETFs

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ETF market maker Global Trading Systems (GTS) has been under what the firm’s principal Reggie Browne (pictured) calls ‘a number of different corporate flags’ over the last few years. The firm is the biggest NYSE designated market maker trading every asset class from equities to fixed income to commodities – including anything in a UCITS or 40 Act sleeve, as Browne puts it.

In scale, GTS is the designated market maker for 1100 corporate equities which represent USD13.5 trillion in market capitalisation and make a market in 167 of the S&P 500 stocks.

The firm has 9 per cent of new ETF listings in the US with 220 different tickers. “Historically, we are responsible for a large footprint,” Browne says, citing about 7 per cent of SPY going through them each say and roughly 6 per cent of the US equity market in aggregate a day. In terms of working with ETF providers or sponsors, Browne says that the new ones they seek to work with have to be able to build a relationship with them that will make quality markets so they can help their ETF launches.
 
“I look for something unique that isn’t in the marketplace or has an opportunity to be successful and then I look towards the ETF sponsor to guage their commitment to be successful and raise distribution,” Browne says. Browne categorises ETFs into the broader US equity market framework with SPY, the largest ETF in the world, falling into the large cap sector, and the rest divided into mid cap and small cap.
 
“SPY has lots of assets under management, lots of players who want to trade it while new ETFs are small cap, just starting out and getting assets. Under management, they grow into mid cap.”
 
From his unique position, Browne has observed a couple of trends in the ETF industry. “I see more active managers looking to come into the ETF industry through the new active managed ETF structure which is non transparent, although we are working on new nomenclatures for it and how best to frame it so investors have clarity that this is an active ETF structure that does not disclose fully its holdings in real time.”
 
The next trend Browne has observed is ETPs with options embedded in them, which guarantee a stream of income or limited downside risk. “The reason why these are so important is that these would work well with the annuity market,” Browne says. “And there is USD3 trillion in annuities so that’s the next wave of disruption, to address those buyers, lower the costs and offer increased transparency.”
 
Browne has also observed that fixed income ETFs are enjoying a lot of success this year in terms of asset raising. “As corporate bonds become indexed inside ETFs, there is greater price discovery and transparency so traditional fixed income investors are using ETFs as a way to get exposure and bringing more investors into the landscape,” he says.
 
 
 

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