Boost ETP, a London-based provider of short and leveraged exchange-traded products (ETPs), has signed up Morgan Stanley as a new Authorised Participant (AP).

Hector McNeil, Co-CEO of Boost.

Morgan Stanley becomes Boost’s sixth AP, alongside ABN Amro, BNP Paribas, Flow Traders, UBS and Virtu Financial.

APs undertake the responsibility of creating and redeeming units in an ETP in the primary market. In theory, a greater number of APs should lead to increased liquidity and tighter pricing for the ETPs assigned to them.

With physically replicated ETPs, APs create ETP shares – known as creation units – by assembling the underlying securities of the ETF in their appropriate weightings to reach creation unit size and then delivering those securities to the fund in-kind. In return, the AP receives ETP shares which are then introduced to the secondary market where they are traded between buyers and sellers through the exchange. APs also have the ability to redeem ETP shares through the same process in reverse.

With swap-based ETPs, this process typically works by creating or redeeming shares via a cash or in-kind basis using securities acceptable to the sponsor rather than the actual underlying.

Boost’s decision to expand its roster of APs comes at a time when short and leveraged ETPs are generating increased interest among investors of all stripes – private, intermediary and institutional – driven, in part, by the desire to move towards liquid, transparent and collateralised on-exchange alternatives to over-the-counter swap agreements and spread bets.

Indeed, the desire for more-robustly regulated products has been reflected in assets under management. According to a recent report by Boost, short and leveraged ETP assets rose by $5.1 billion (11.5%) in the first five months of 2013 to just shy of $50 billion. Globally, exchange-traded volumes have also increased for these types of products, increasing from $113 billion per month to $154 billion per month since 31 December 2012 to 31 May 2013, a 36% increase.

Hector McNeil, Co-CEO of Boost, said: “Boost is very happy and excited to welcome Morgan Stanley to our platform of ETPs and ETCs. Morgan Stanley are a world class ETF market maker who will enhance the liquidity of Boost’s products.”

He added: “Continuing inflows into the short and leverage ETP market show that short and leverage ETPs are useful tools for investors, not least because they can be used to hedge portfolios or profit in falling markets.”