Courtesy of WSJ reporters Tim Cave and Sarah Krouse
Bats Chi-X Europe, the region’s largest equities trading platform, has been endorsed by BlackRock Inc. BLK -1.77% for its new exchange-traded fund platform.
From next month, the fledgling stock exchange will list two of BlackRock’s iShares ETFs as secondary listings: the iShares MSCI Emerging Markets Ucits ETF andiShares MSCI World Minimum Volatility MINV.LN -0.11% Ucits ETF.
BlackRock is the first to list ETFs on Bats Chi-X Europe, which received a stock exchange license from the UK’s Financial Conduct Authority in May. Until now Bats has been a secondary equities trading venue, but the exchange license allows it to diversify into primary listings for companies, derivatives products and ETFs.
Trading in European ETFs is highly fragmented, with issuers forced to list their products across a number of different exchanges. In Switzerland, for example, issuers are not permitted to market their products in the country without a local listing.
Bats is attempting to solve the issue of “fragmentation, transparency and liquidity” by creating a pan-European ETF listing venue, according to Mark Hemsley, chief executive of Bats Chi-X Europe, which is operated by BATS Global Markets, Inc.
He said, “We have come up with a pan-European listings model for the ETF market, which will help to resolve the issues of having several listings across jurisdictions, improve liquidity in specific products and offer a single clearing and settlement model.”
Bats Chi-X Europe is hoping to build liquidity in a handful of ETFs and put an incentive scheme behind them. Mirroring developments in the European equities market, Hemsley said Bats would use a maker-taker pricing model for the ETFs, which rewards liquidity providers to the platform through a rebate.
He added the firm was already in discussions with a number of banks and market-makers to become liquidity providers.
The ETFs will also clear through a single clearer, the Dutch operator EMCF. Bats took a 25% stake in the entity created through the merger of EMCF and rival clearer EuroCCP earlier this year.
BlackRock’s decision to list products with Bats Chi-X Europe marks a high-profile endorsement for the exchange.