Bats Chi-X Europe will cross-list two BlackRock exchange-traded funds next month, as the exchange aims to consolidate the fragmented European ETF market.
The Financial Conduct Authority, the U.K. regulator, authorised Bats Chi-X Europe as a recognised investment exchange in May. Guy Simpkin, European head of business development, is leading the listings business which initially focuses on ETFs and exchange-traded products.
"When we spoke to our clients about primary listings they cited ETFs as having the most friction in the current marketplace and where they wanted radical change," Bats Chi-X Europe Chief Executive Mark Hemsley told Markets Media.
Hemsley explained that European issuers need to list the same ETF on multiple venues, with clearing and settlement in multiple locations. Bats Chi-X offers pan-European trading from one venue. "Bats Chi-X Europe is integrating the settlement and clearing processes and is offering NAV trading which is different than other exchanges," said Deborah Fuhr, partner at ETF Global Insight, in an email to Markets Media.
Bats Chi-X is the first European exchange to offer a competitive liquidity provider program to ETF market makers, according to Hemsley. In the CLP program, issuers have a budget to reward market makers who meet specific criteria such as the bid-offer spread, the number of shares and the length of time for which they offer prices. The exchange monitors their performance to allocate the rebates.
"Our trading costs are already the lowest in Europe but the CLP program can provide an additional source of income for market makers in addition to the maker-taker model,” Hemsley said. “The best CLPs could share €100 per day on the bid and another €100 per day on the offer for each listed security."
He said that the exchange is in discussions with potential market makers but declined estimate how many will be active when the listings start trading.
The first two cross-listings from BlackRock will be the iShares MSCI Emerging Markets Ucits ETF and iShares MSCI World Minimum Volatility Ucits ETF.
"We anticipate that their innovative program will add liquidity to the European ETF market and support our ambitions to grow the market by delivering an improved trading experience for investors,” said Leland Clemons, head of capital markets EMEA for iShares, in a statement.
In equities Bats Chi-X Europe had market share of 23.4% in September, with a new monthly market share record of 8.8% set in Germany’s SDAX and its second-best month for market share in depositary receipts, according to operator Bats Global Markets. Average daily notional value traded on BATS Chi-X Europe was €7.9bn in September, 13% more than €7bn in August.
"In our equities market we had slower volumes last week and this week in response to the U.S. (government) shutdown and there is unlikely to be a pick-up until the market sees some kind of resolution," said Hemsley.