European ETP trading exceeded EUR2 trillion in fragmented market write Athanasios Psarofagis, ETF analyst and Henry Jim who have produced a report on European ETP trading in 2021.
European ETP turnover topped EUR2 trillion euros for the second straight year in 2021 as industry inflows reached a record. Though BlackRock’s iShares has a sizeable lead among issuers, trading remains fragmented across venues, with multilateral trading facilities handling the biggest share and exchanges expanding their role.
1. MTFs have biggest chunk of European trading
Request-for-quote (RFQ) services via multilateral trading facilities (MTFs) such as Bloomberg and Tradeweb handle the largest portion of Europe’s ETP trading. The two platforms combined for 38 per cent of traded value in 2021. The over-the-counter share has declined slowly since the start of 2020 as volume shifts to major stock exchanges. The exchanges’ 43 per cent figure is somewhat elevated by their own RFQ platforms, where trading isn’t on-exchange but appears to be. Bloomberg’s MTF accounted for 23 per cent of Europe’s ETP trading and Tradeweb’s 15 per cent. London and Xetra led among exchanges, with about 9 per cent each.
2. Trading still fragmented in Europe ETPs
Europe-listed ETPs’ trading volume reached EUR2.1 trillion last year, slightly below the EUR2.4 trillion in 2020, which came amid heightened market volatility. Trading levels are elevated overall but fragmented across venues, led by Bloomberg and Tradeweb’s MTFs.
3. iShares has Europe’s deepest liquidity pool
iShares accounts for the largest portion of Europe’s ETP trading, averaging 42 per cent of the total value, well ahead of No. 2 Xtrackers. Issuers’ volume is generally in-line with asset share, but WisdomTree, with its lineup of leveraged ETFs, tends to punch above its weight during volatile market periods. WisdomTree usually accounts for 2.5-3 per cent of monthly turnover but approached 10 per cent in March 2020.
ETFs normally make up about 95 per cent of the value traded, while ETCs (exchange traded commodities) average roughly 5 per cent. (01/11/22)
4. Europe’ ETP trading less top-heavy than US
The fragmented nature of Europe’s ETP market means trading is more spread out, preventing dominance by a few products. Last year’s turnover of EUR2.1 trillion was a strong showing following 2020’s volatility-induced EUR2.4 trillion. Europe’s 15 most traded ETPs accounted for 19 per cent of the region’s volume in 2021, well below the almost 50 per cent for peers in the US. The iShares Core S&P 500 UCITS ETF (CSPX) was the most traded product, at over EUR59 billion euros.
5. Liquidity moat harder to build With European ETPs
ETP liquidity tends to be spread out among newer and older products in the European market, where trading is relatively fragmented. In the more concentrated US, 80 per cent of industry turnover is in funds launched in 2008 or earlier, and products can form large liquidity moats that can be difficult for newer rivals to breach. In Europe, trading share tends to be more aligned with the number of ETPs introduced in a given year.
European offerings from 2009 and 2010 have more than 8 per cent of volume each, while 2018’s led with 12 per cent.
