HSBC has launched a first-of-its-kind algorithm that allows investors to execute ETF trades based on their estimated real-time intraday net asset value (NAV).
The iNAV algorithm works by using live intraday NAVs to calculate when an ETF is trading below its creation costs so an investor can benefit by buying shares at that moment and vice versa when they are selling.
HSBC says iNAV will provide investors with better price transparency and optionality for ETF trading on exchanges while helping them decide whether to trade on an exchange, over-the-counter (OTC) or via a Request-for-Quote (RFQ) platform.
It will also give investors a more transparent way of undertaking transaction cost analyses by comparing the executed price of an ETF against its real-time NAV.
Steve Palmer, head of ETF sales trading at HSBC, commented: “The iNAV algorithm is set to revolutionise ETF execution as it provides a unique capability to customers by executing ETF trades in real time while tracking their intraday net asset, or fair, value.
“Currently, investors lack the visibility of real-time, intraday net asset values of ETF shares and, therefore, find it difficult to assess whether an ETF offers good value in the secondary market.
“iNAV can reduce market impact and therefore the total cost of execution by seeking out those secondary market opportunities for investors.”
Paul Battams, head of EMEA equity trading at BlackRock, added: “ETF-specific algorithms are an important introduction for the growing European ETF industry, helping to broaden execution choices and bring greater flexibility to ETF execution processes to the benefit of investors.”
iNAV will look to maximise all available pools of liquidity on primary exchanges and alternative trading venues such as multilateral trading facilities (MTFs).
The product will be available for clients in European markets to execute ETF trades that have equity or precious metals underlyings with plans to roll out fixed income ETFs soon.