ETF trading platform enjoys a wide range of users

This article originally appeared on ETFExpress.com here.

Tradeweb: Best ETF Platform – Electronic platform trading provider Tradeweb launched its US ETF platform in 2016 after a lengthy period of consulting with existing European ETF customers as well as US fixed income clients.

Adam Gould, head of US equities at Tradeweb, says: “Anything we do starts with discussions with clients, so our first conversations were with existing Tradeweb users who had embraced our European ETF platform and found value in its competitive pricing via RFQ, order management system integration capabilities and overall functionality.” 

ETF block trading in the US at that time was still primarily done on ‘phones and in chats’ to quote Gould, a route which could prove inefficient at getting the best possible price in a timely manner. Tradeweb US, winner of Best ETF Platform in the ETF Express US awards for 2019, brought an offering that streamlined that process. 

The offering launched with half a dozen liquidity providers, and now totals 22, with both clients and liquidity providers demonstrating their enthusiasm for trading on an electronic RFQ platform. Gould says: “While we initially launched with blocks, we have now expanded that functionality to include lots of other trade types as well as robust pre-trade and post-trade analytics.” 

But it wasn’t just a question of moving the European functionality over to the US. Changes to the platform needed to be made too. Essential differences exist between the European and US ETF markets, including regulatory requirements and available liquidity on exchange. This meant that the US version of the platform needed to be customised to meet a different set of requirements. 

“The US platform tends to cater in large part to bigger block trades. While an ETF may have a tight spread on exchange, it may only be bid or offered for a few hundred shares. Historically, when a US investor wanted to trade a large block, they would pick up the phone and call two or three dealers to ask for a price. “On our platform, you can get all the quotes back quickly and make a decision based on best price often times in a matter of seconds. This allows asset managers to transfer risk across different benchmarks quickly and efficiently, with known counterparties.” 

The platform also offers a data set on liquidity providers, offering information on which ones are the right ones in which asset classes and sizes of trades. Tradeweb plans to launch new analytics tools in the next month that will help clients narrow down their search amongst dealers. 

Another revelation for Tradeweb US is the spread of geography and strategy that users represent. Gould says: “One of the things we find most exciting, and speaks to the broad based use of ETFs in terms of strategies for investment managers as well as geographically, is that, when the market opens in the morning, I could find a Nordic pension fund, a wealth manager out of New Jersey, a registered investment adviser out of Austin, Texas and a hedge fund out of London all using our platform. Each morning, that is really exciting to see.” 

Gould also observes that fixed income money managers are using ETFs more and more: “But they look, feel and settle like stocks, so fixed income money managers often require a decent amount of education on ETFs before they begin to use them. Since almost everyone in fixed income is accustomed to the RFQ protocol, it often provides a level of comfort when trading this new instrument.” 

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