Mandated trade reporting under MiFID II has revealed record trading volumes and liquidity in the European ETF market, providing comfort to new and existing investors that European listed ETFs are an efficient and liquid way to invest.
Stephen Cohen, Head of iShares EMEA at BlackRock.
That is the conclusion of research conducted by BlackRock in the lead up to the one-year anniversary of MiFID II’s implementation.
The package of comprehensive Europe-wide rules designed to strengthen protection for investors and improve transparency took effect at the start of 2018.
Prior to the start of the year, ETF trading off exchange was not required to be reported which greatly hindered the visibility of total ETF trading in Europe. However, with MiFID II mandating the reporting of off-exchange ETF trading, visible ETF liquidity in Europe has quadrupled from approximately $500 billion in 2017 to over $2 trillion in 2018.
Even without additional visibility, BlackRock highlights that average on-exchange ETF trading volumes increased 29% for iShares’ EMEA-listed ETF line-up year-over-year.
In a first for European ETPs, iShares products were the most actively traded exchange cash equity instruments in Europe on two occasions in 2018: the iShares Euro Stoxx UCITS ETF – providing broad exposure to developed market eurozone stocks – traded more than $500 million on 29 and 30 August, more than double any European equity security. Additionally, the iShares Physical Gold ETC traded approximately $409 million on 2 July, $150 million greater than the second most actively traded stock on that day.
iShares EMEA on exchange volume
Source: BlackRock.
Stephen Cohen, Head of iShares EMEA at BlackRock, notes that trading data – showing how often ETFs are changing hands – reveal that investors are using them to navigate heightened volatility and uncertainty.
He said, “As the market matures, so do the different ways investors use the products, and the ability to trade larger exposures is an important part of that optionality – trading volumes help prove that the ETF market is deep enough to transact effectively both on small and large scales.”
The implementation of MiFID II has also resulted in a surge of new market makers registering with exchanges due to direct obligations set out by the regulation. BlackRock notes, for example, that the number of registered market makers providing liquidity for the iShares European ETF suite has grown by 25% over the past year.
“The more market makers in a trading ecosystem the easier it is for ETF investors to transact, or, in other words, the more liquid the ETF market,” said Cohen, noting that greater trading activity and more market makers have led to spreads on the iShares European range falling by 14% over the last year and 24% over the last two years.
iShares EMEA range spread and flow evolution
Source: BlackRock.
While BlackRock praises this greater visibility as a significant step for the European ETF industry with clear economic benefits for participants, it also notes that the abundance of trading data still needs to be aggregated and is currently not readily packaged for all portfolio managers.
The next big step forward, argues Cohen, will be a “consolidated tape” that aggregates and reports the volumes of ETFs traded into one place.