The letter, which is signed by UBS, Susquehanna, BlackRock, Source ETP, BATS Chi-X, Lombard Odier, HSBC, Jane Street, Vanguard and State Street Global Advisors, calls on ESMA to ensure that several key factors are implemented in the text and that technical post-trade transparency rules are sufficiently robust and rigorously enforced.
The letter reads: “As Europe’s major issuers, liquidity providers, trading venues and investors in ETFs we strongly support the inclusion of ETFs in the scope of the updated Markets in Financial Instruments Directive and Regulation (“MiFID”) regime, which we understand is due to apply from the beginning of 2017.”
Several points that are highlighted by the letter include:
• The emergence of competing consolidated tapes would have to be supported by harmonised post-trade data and publication standards taking into account the characteristics of the ETF market and be applicable wherever trading took place.
• Since the transparency afforded by a consolidated tape for ETFs is of key importance to end-investors, and ultimately market quality, if a comprehensive commercial solution does not come forward we would encourage ESMA to advise the Commission to mandate a single authoritative consolidated tape provider.
• In defining a liquid market for ETF’s ESMA should note that the measures relevant to define a liquid market for shares (average daily transactions, average daily turnover and free float) are not wholly appropriate for the ETF market.
• A consistent regulatory framework across Europe in matters such as buy-in regimes is of key importance to enhance the post trade environment for ETFs. ESMA should be vigilant in respect of de facto implementation of the CSDR to avoid possible regulatory arbitrage.
Michael John Lytle, chief development officer at Source, said: “ETFs will be carried along by this market transformation but we believe that ETFs should be at the forefront. As truly supranational securities, ETFs can benefit even more than traditional cash equities from breaking down barriers.
“Market transformation requires collaboration. No single commercial entity can drive this transformation,” Lytle said.
Mark Hemsley, chief executive officer of BATS Chi-X Europe, the only stock exchange to sign the letter, also told ETF.com: “This letter is about getting more visibility in trade reporting and the timing now is most important as ESMA are in the process of doing the wording for it.
“BATS Chi-X are the only exchange to sign the letter and this underlies one of the issues, which is that many of the other exchanges aren’t interested in a consolidated tape,” he said.
The letter comes days after BATS Chi-X Europe teamed up with Euroclear Bank in a bid to fight fragmentation with the listing of the first ETF with an international securities structure.
The iShares MSCI USA Dividend IQ UCITS ETF is intended to streamline ETF trade processing and settlement in the European market.
Euroclear Bank enables these ETFs to be cleared in a single international location instead of settling in a national central securities depositary where the ETF is listed.
Europe’s current ETF industry fragmentation issue can be highlighted with data from ETFGI, which shows that at the end of April 2014, the European ETF/ETP industry had 2,015 ETFs/ETPs, with 6,130 listings, from 50 providers listed on 25 exchanges across Europe.
It is estimated that only 30 percent of all ETF trading can be seen in Europe with the remainder done in the over-the-counter (OTC) market.