TradeWeb Muscles Into ETF Execution Space

Fixed Income trading platform TradeWeb, best known for its dominant role administering OTC government securities trading between global banks and institutional customers is muscling into the world of ETFs. Tradeweb has just launched an electronic over-the-counter marketplace for trading exchange traded funds using a “request-for-quote” aka “RFQ”- based platform that is modeled after a platform Tradeweb successfully launched in Europe in 2012.

Tradeweb’s new U.S. platform is designed to be a fully-automated alternative to phone- and chat-based over-the-counter ETF trading of institutional-sized or less liquid orders. Tradeweb clients can use the platform to send RFQs to up to five dealers at a time, using either one- or two-way price quotes. The platform offers aggregated pre-trade price transparency from liquidity providers and National Best Bid and Offer exchange pricing. The platform can also seamlessly connect to third-party and proprietary order management systems, and risk management systems to enable market participants to fully automate workflows. There are now 11 leading liquidity providers on the platform, according to a company announcement.

In Europe, where ETF liquidity is relatively fragmented, Tradeweb’s platform has become one of the largest pools of ETF liquidity. The European platform supports more than 45 percent of OTC electronic trading and the platform’s daily volume exceeds €500 million (approximately $5.6 million) per day. In the U.S., ETF liquidity that trades on exchanges is more centralized, but Tradeweb’s platform is the first fully-electronic platform for trading institutional-sized or less liquid orders through dealers.

chris hempstead
Chris Hempstead, KCG

“The Tradeweb ETF platform offers a new channel for liquidity and enhances our suite of execution capabilities,” said Chris Hempstead, head of ETF sales for KCG. “The platform represents a novel approach to improving price discovery as well as an innovative way to execute larger-size trades, while reducing the risk of materially impacting pricing.”

Institutions were early adopters of ETF and now hold about 34 percent of U.S. ETF assets, according to November data from State Street Global Advisors and Broadridge. As institutional OTC trading of ETFs continues to grow, market participants say pre-trade transparency into institutional-sized liquidity, and more streamlined, automated workflows are a next step.

“Leveraging electronic solutions to streamline over-the-counter trade workflows is an important step forward for the ETF industry. The combination of a robust exchange traded marketplace with an electronic, transparent OTC market delivers institutional investors choice in how they access liquidity,” said Leland Clemons, managing director at BlackRock iShares.

Tradeweb clients in the U.S. will be able to use the new platform to access all U.S.-listed ETFs, including fixed income ETFs, as well as European-listed ETFs.