Are ETFs more liquid today vs 3 years ago?

by , 11th October 2018

Jane Street issues its second annual institutional ETF trading survey, the firm announce today. The survey discusses institution’s opinion on the liquidity of ETFs, platforms that are gaining traction and what influences an investor’s decision in picking an ETF provider.

The survey consists of 296 institutional investors who are situated in 3 regions: Asia-Pacific, Europe and the US. The survey’s respondents say that the frequency and size of their ETF trades have increased over the last 12-months. To be precise, 38 per cent of those surveyed executed over 25 ETF trades a month. Additionally, the same figure reports at least one of their largest trades being over $50m in size.

The institutional perception of ETF’s liquidity today compared to three years ago is positive. The three asset classes analysed are emerging markets, fixed income and developed markets with the opinion that 88 per cent, 87 per cent and 94 per cent believe that liquidity has increased (or is equal to that of three years ago) respectively.

Another product said to be widely used are UCITS ETFs. The majority of those surveyed say that the proportion of UCITS ETFs trading has increased at their firms over the past three years and has improved their ETF experiences.

There is one dominant ETF trading platform institutions are using which is the Request-For-Quote (RFQ) platform. Over half of those who trade UCITS ETFs will trade using an RFQ platform. The increase in popularity is a result of an EU financial regulation implemented earlier this year. The regulation means the platform must seek out the best price and show evidence it has done so.

Dozens of ETF issuers are competing to gain the attention of institutional investors and there are several factors why an investor will select an ETF provider. The survey determines that these factors include expertise in complex markets, an ability to trade in large volumes and the ability to provide research offerings. However, a dominant factor why an investor will go to an ETF provider is costs. 55 per cent of those surveyed say that competitive prices is the reason for selecting an ETF provider. This figure in Europe alone is over 70 per cent.

Jane Street concludes by acknowledging how interesting it will be to see trends evolve as institutions increase the use of ETFs.