ETF boom drives down emerging market commissions

New study suggests the ETF boom has led to a reduction in commission rates, making it easier to access emerging market equities.

The recent boom in exchange-traded fund (ETF) activity could be behind a significant reduction in commission rates on emerging market equity, according to Greenwich Associates.

The company’s latest report explained premiums paid on emerging market equity trades relative to brokerage commission rates were reduced from 56% in 2015, to 43% in 2016.

William Llamas, associate director at Greenwich Associates and author of the report explained the statistics suggest emerging markets are becoming more accessible to traders, which could be a result of the ETF boom.

ETFs have opened up the opportunity for investors to access emerging markets where size and various barriers have perilously prevented this. 

Trading statistics from Tradeweb suggest investing patterns of ETF’s which saw a surge in activity following the US presidential election, have reversed as the market begins to process the new political landscape.

Between November 2016 and January this year, Tradeweb revealed US equity ETFs have slowed down to a ‘buy’ ratio of 53%, after a high of 62% in December 2016.

Earlier this month, The Autorité des marchés financiers in France authored a report warning investors that ETF liquidity remains a risk despite the recent boom in activity.

“An ETF’s liquidity is ultimately tied to that of its underlying securities and relies heavily on the key role played by the authorised participant. A major event affecting most or all of its underlying market segment can lead to trading halts on both the secondary and primary markets,” the report said.

The AMF warned if investors’ interest in ETFs is supported by low interest rates, “heightened vigilance” is required due to the potential excessive influence of passive management.

Greenwich Associates’ report concluded: “Ultimately, increased ETF activity should improve the liquidity of underlying shares, further opening investment opportunities.”