The London Stock Exchange (LSE) has revealed plans to launch a block trading facility for exchange-traded funds (ETFs) next month, saying it hopes to capture a significant portion of current OTC trades.
Traditionally, large ETF trades have always taken place in the OTC market, but LSE is set to introduce new ways for firms to execute on exchange and benefit from trading via a regulated market.
Market participants looking to make an ETF block trade will be able to enter into negotiations as usual, but then be able to benefit from central clearing and printing by executing on exchange, reducing the need to separately clear and report a transaction.
“This has been developed with the buy-side in mind,” said Gillian Walmsley, head of fixed income products as LSE. “Institutional investors today have a much bigger appetite for trading transparently, partly driven by regulation, but they also want the benefits of using central clearing to eliminate counterparty risk.”
The ETF block trading facility follows on from other recent LSE initiatives, such as a new intraday auction to be introduced later this year and the launch of Block Discovery on Turquoise in 2014.
A similar service has already been launched on LSE’s Italian market and, once the market had adapted to the changes, has seen rapid take up.
“We think this has even more potential in London,” added Walmsley, “As a market it’s far more institutional and once the community has worked through the changes we’re introducing we expect strong growth in trading.”
The service will be fully MiFID II compliant and is being offered fee-free for the first six months of operation.
ETFs have become increasingly important for exchange groups in recent year as investors have favoured them over directly owning shares due to a trend towards macro-investment strategies. The LSE first listed an ETF 15 years ago and today overs over 1,000 different products for trading.