Euronext plan to consolidate ETF trading venues sparks scepticism

Trade figures have welcomed formidable plans by Euronext, the inventory trade group, to consolidate the hundreds of trade traded product listings scattered throughout its seven bourses on to 1 venue.

Nonetheless, some are sceptical about whether or not Euronext can obtain its goal — notably by the top of the September, which is believed to be its goal — given the political sensitivities across the well being of nationwide inventory exchanges.

Euronext has greater than 3,300 ETP listings unfold throughout the Milan, Amsterdam, Paris, Oslo, Brussels, Dublin and Lisbon exchanges, with many funds listed in a number of areas.

This saps liquidity and provides to buying and selling spreads and prices, eroding buyers’ returns.

Euronext is believed to be in discussions with market contributors about shifting all its ETPs to 1 trade. This could possibly be a case of transferring all of the listings to Amsterdam, or alternatively letting every of the 45 ETP issuers that use its bourses nominate one trade for his or her merchandise.

If the hurdles might be overcome, many within the ETF trade would welcome this.

“Sure, I can actually see advantages in combining the listings on to 1 central trade and lowering the fragmentation that we see in the mean time,” stated Nick King, head of ETF at Dutch fund supervisor Robeco.

“For those who can persuade the market that that is going to occur, it could be good for everybody concerned,” he added. “It could focus liquidity in fewer locations and it could cut back prices — itemizing charges and market-making prices might be decreased. With elevated buying and selling volumes, spreads ought to come down, too.”

Andrew Jamieson, world head of ETF product at Citi, hailed Euronext’s initiative as “an fascinating idea”.

“[One of] the challenges in Europe [has] been the fragmentation at native itemizing degree,” Jamieson stated. “The concept of a single aggregated venue might be interesting.”

At current, Milan dominates Euronext’s ETF listings with 2,019, however its Paris (710) and Amsterdam (634) bourses additionally boast massive ranges, whereas Dublin, Brussels and Oslo have only a handful and there are none in Lisbon.

Some market contributors, nonetheless, worry that the political and regulatory boundaries to Euronext consolidating its listings could show insurmountable.

“With the state of the market now, I doubt it’s going to be straightforward to realize. Every nation, for political causes, goes to defend its turf,” stated Bruno Poulin, chief government of Ossiam. The asset supervisor has ETFs listed in Paris and Milan, in addition to on the non-Euronext London Inventory Trade, Deutsche Börse’s Xetra and the Six Swiss Trade.

“Check out what is going on now with the Draghi report [on lagging EU competitiveness]. Whereas every nation is beneficial in the direction of the report, they don’t — but, at the very least — agree on particular actions that needs to be taken,” Poulin added.

“Traditionally, if you converse to a gross sales crew, they are saying they want one thing in their very own marketplace for patriotic causes. From a enterprise perspective, it’s not very environment friendly”, he stated, with the situation mattering most for retail buyers.

Jamieson famous that laws in some jurisdictions, comparable to Germany and Switzerland, required an area itemizing, complicating any makes an attempt at consolidation.

Furthermore, a consolidated Euronext itemizing venue would “nonetheless be a comparatively small proportion of the market”, with the repertoire of ETPs listed on its septet of exchanges “considerably smaller” than that of the London, Swiss and Xetra exchanges, Jamieson stated.

The LSE claims to be “the main European centre for ETFs”, with greater than 1,700 ETFs listed on its essential market, a determine that balloons to 2,600 when factoring in numerous currency-based listings. The Xetra trade options greater than 2,300 ETPs, whereas Six has 2,100.

Because of this, the typical European ETF is listed on 3.5 bourses, based on ETFbook, a knowledge supplier.

Poulin is amongst those that would favor to see consolidation that encompasses all the continent’s bourses, saying “for us, one single market together with the UK could be higher”.

Kenneth Lamont, principal of analysis at Morningstar, believed Euronext’s plans have been “a step in the proper route” and it “needs to be applauded” if it succeeded.

But, given the fragmentation and illiquidity that plagues the $2.4tn European ETF market, he agreed with Poulin {that a} continent-wide resolution could be preferable.

“[This] may resolve somewhat little bit of the issue since you are consolidating a few of the native markets in Europe, but it surely’s not all of the native markets in Europe. It’s suboptimal”, Lamont stated.

“It’s within the pursuits of your complete trade to co-operate on [a pan-European solution]”, he added. “[But] it’s a collective motion downside. All people out there desires it to occur however nobody has the authority to do it. It must be a top-down regulatory resolution.”

Each King and Jamieson additionally had issues concerning the settlement course of Euronext may undertake to service their ETFs if they’re all on one trade, fearing this might create further fragmentation for asset house owners. “Euronext have some historical past on this regard,” Lamont stated.

It could even be the case that Euronext would search to boost its ETF itemizing charges, to compensate for shedding income if it not has a number of listings.

Euronext stated it “doesn’t touch upon this matter”, however added “as outlined in our ‘innovate for development strategic plan’ for 2027, we’re dedicated to addressing fragmentation within the European ETF market to unlock its full development potential.

“As a part of our street map, we plan to introduce a consolidated European itemizing, buying and selling and post-trade resolution for ETFs. This initiative goals to remove the necessity for a number of listings, streamline distribution, improve liquidity and enhance post-trade effectivity.”