Fixed Income ETFs: Accessing A Crtical Asset Class

December 22, 2014

Arnaud Llinas

Pietro Poletto

The Exchange Traded space is rapidly evolving, offering investors the opportunity to gain exposure to a diverse range of products and asset classes. One asset class that has become increasingly popular over the last few years is fixed income, reflecting the different approach investors are taking to returns, perhaps in light of the shifting interest rate environment. Against this backdrop, London Stock Exchange continues to grow its market share of ETF trading across Europe, allowing London to see some of the highest concentration of liquidity on its markets and remain the leading institutional market in Europe for ETFs. Total on-exchange turnover for ETFs and other ETPs on London Stock Exchange to date in 2014 is around £140 billion with over 1.8 million trades, bringing the Group’s market share to over 40 per cent of European ETF trading.

We have also grown to become the largest European fixed income ETF market with the highest on-exchange turnover (£30.3 billion year-to-date) for fixed income ETFs, offering ETFs with underlying exposure to sovereign bonds, developed and emerging market corporate bonds, money markets and convertible bonds. Over 80 per cent of the top 20 European fixed income ETFs, by value traded, are listed on London Stock Exchange. We also marked a significant milestone recently, welcoming our 150th fixed income ETF to our markets, further demonstrating London’s ability to offer the widest diversity of products and investor access to global fixed income markets. ETFs are an attractive investment, a low cost approach to accessing a broad range of asset classes which trade like shares, using full order – driven electronic services. All trades executed on London Stock Exchange’s order-book are automatically traded, reported, cleared and settled. Another key feature of ETFs to consider is liquidity.



The liquidity of an ETF depends on a number of factors, including liquidity in the underlying securities making up the ETF and other elements such as the level of competition among market makers. London is well supported by a broad range of liquidity providers; there are 24 registered market makers providing continuous pricing and a high quality pool of liquidity on our order-book. In addition, there are more than 400 brokers and member fi rms from over 20 countries connected to London Stock Exchange’s order book with access to trade ETFs.

All ETFs traded on London Stock Exchange have at least one registered market maker providing on screen two way executable quotes throughout the trading day within a maximum spread and minimum size. Market makers can update their two way quotes as many times as required without any further costs, ensuring accurate pricing.

As the market continues to develop, we remain driven to further enhancing opportunities for our customers on our markets. We see a positive trend emerging towards more on exchange trading in Europe and London is in a strong position to capitalise on this. With our enhanced transparency, effi cient pricing and cleared trades, we want to continue to drive increasing volumes on to our markets.







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