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The Buy-Side Is Executing Larger, More Complex ETF Trades

Traders Magazine Online News, October 18, 2018

John D'Antona Jr.

The institutional investor is becoming more enamoured with exchange-traded funds (ETFs). 

Says who?, with a mandate from Jane Street,  just released its second annual institutional ETF Trading Survey, “Institutional ETF Trading – Liquidity Improving, Trade Sizes Growing,” which examined the behavior of how approximately 300 institutions are trading ETFs. The survey found that firms are executing larger, more frequent and more complex ETF trades. Furthermore, the survey revealed institutions are becoming more comfortable with the liquidity of ETFs; showing what types of trading and platforms are gaining traction; and it outlines how increased transparency and competition are changing the dynamics of the market.

“The results are consistent with what we’re hearing from our conversations with some of the largest pension funds and asset managers in t he world,” said Andrew Upward, ETF Strategist at Jane Street. “Institutional perception of liquidity is improving, which is driving ETF use in core investment strategies.  And we’re seeing larger ETF trade sizes as a result.”

Some of the key survey highlights:

  • Nearly 90% of institutions believe that ETFs are more liquid or just as liquid today vs. 3 years ago.  This is true across all ETF asset classes - including fixed income, emerging markets, developed markets, and commodities.
  • Competitive pricing is the most important criterion for selecting counterparties, with 55% of institutions putting it in first place.  Institutions value pricing twice as much as any other criteria – including expertise in complex or illiquid assets, ability to trade in large size, and value-added services. 
  • The size of the average ETF trade continues growing. 24% of global institutions reported executing a trade over $100 million in the past year, up from 21% in 2017; in the more mature US/Americas market, 4% of respondents had executed a trade over $1 billion.
  • Independent market-makers are gaining traction. Market-makers are the top choice of counterparty among buy-side institutions, experiencing a 6% increase from last year’s survey.  
  • Use of request-for-quote (RFQ) platforms is on the rise, with adoption led by European traders.

The 2018 ETF Trading Survey can be viewed here:

The surveyincluded response from 296 institutional investors and qualitative interviews from 14 buy-side firms. 53% of responses were from asset managers/hedge funds, 20% from wealth platforms/family offices/registered investment advisers, 13% from insurance companies and 5% from pension funds.

It was conducted between March and May 2018, and the pool of respondents was drawn from institutional investors who trade ETFs. The results were collated from respondents who answered 100% of the survey from the following regions: Asia-Pacific (29%), Europe (36%), and US/Americas (36%).


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