Published by Asia Asset Management – 15th Oct 2018
Asia Pacific institutional investors are increasingly choosing independent market makers over investment banks as counterparties to trade exchange-traded funds (ETF) due to strong demand for competitive pricing, according to findings from a survey by Jane Street, a US market-making and quantitative analysis service provider.
The poll of 296 institutional investors found that the proportion of Asia Pacific investors that chose independent market makers as counterparties for ETF trading jumped to 15% this year, from 9% in 2017.
Conversely, the share of Asia Pacific investors using banks as ETF counterparties declined to 39% from 53%.
Jane Street and UK financial media Risk.net conducted the survey between March and May 2018. Some 29% of respondents are from Asia Pacific, and the balance from Europe and the Americas.
The findings suggest “a shift away from investment banks towards independent market makers”, Jane Street says in a statement on October 11.
About 41% of Asia Pacific respondents identified competitive pricing as “the most important criterion” for selecting counterparties, with some saying that independent market makers can price US- and Europe-listed ETFs live, a service that banks cannot provide, the company adds.
Jane Street says the survey also shows that some Asia Pacific investors rely on ETF providers to help select a suitable counterparty because they “know the best market makers for their products” and “know who holds inventory and where to get the best quote”.
The survey found that the average size of ETF trades continues to grow, with 24% of global institutions reporting executing a trade worth over US$100 million, up from 21% in 2017.
The vast majority – almost 90% – of respondents also believe that liquidity of all types of ETFs remains the same, or has increased, compared to three years ago.
Jane Street traded $5.6 trillion across a range of financial products, including ETFs, equities and options, in 2017, according to the statement.
