UBS MTF, the dark multilateral trading facility (MTF) operated by UBS, has begun offering exchange-traded funds (ETFs) on its platform.
As of 18 April, 142 ETFs from Switzerland, Germany, France, the Netherlands and the UK were added to UBS MTF. Some of the ETFs are country-specific, but others are more global in nature.
UBS MTF runs alongside the bank's PIN broker crossing network and incorporates the firm's prop and DMA flow, as well as client orders. The platform matches orders based on the mid-point price of the primary market, which allows it to forgo pre-trade transparency requirements under MiFID.
According to Robert Barnes, CEO of UBS MTF, the different features of ETFs compared to equities, gives dark pools an opportunity to reduce trading costs for investors.
“Spreads can be wider for less liquid ETFs, which gives the UBS MTF the opportunity to provide significant price improvement by matching orders at the mid-point,” said Barnes, adding that UBS MTF can provide five basis points of price improvement on liquid stocks, and up to 100 bps of price improvement on less liquid stocks.
The decision to add ETFs was initially due to client demand, noted Barnes, but he added that European trading venues that want to stimulate trading activity can look to ETFs as a source of growth. ETFs can be traded over-the-counter (OTC) via an authorised participant that has the capability to convert underlying shares into an ETF, as well as on-exchange.
“Around 70% of ETF trading outside of the US is done OTC. This presents an opportunity for public trading venues to benefit by trying to get as much of this flow on their order books as possible,” said Barnes.
According to a monthly report from asset management giant BlackRock, the average daily trading volume of European ETFs grew by 61.8% to US$5.1 billion at the end of Q1 2011, compared to US$3.15 billion in December 2010.
UBS MTF began trading in November last year, becoming the second investment bank to launch a dedicated MTF after Nomura, which converted its NX BCN into an MTF in January 2010.