Largest ETF provider in the world: Blackrock, Vanguard, StateStreet

Largest ETF in EMEA: Blackrock, DWS, Statestreet(only 11%)

Largest ETF SPDR S&P 500 spider-330 billion USD managed by Statestreet

Largest AUM: UK(40%), France (10%) and Germany(11%)

ETF can track all kinds of financial assets even bond; commodities, currency, crypto or even index
tracking i.e. credit rating

ETF(UCITS in EMEA) (starting from early 90s) advantage over mutual fund

1. Cost effective- mainly tracking index as passive investment- low expense ratio
2. Transparency of disclosure-Daily disclosure of holding
3. Liquidity- allow intraday trade- good for short term investment for daily gain
-lower threshold than trading the underlying securities directly
4. the supply of ETFs is open-ended. New ETF shares can be created and existing shares
redeemed based on investor demand

All attract the tech savy retail and institutional investor

Question-Market share? Retail (30%) or institutional investors (70%) in EMEA

ETF retail market is small because of the commission based business models that developed pre
MiFID II. As IFAs and wealth managers adjust to the ban on inducements and look to deliver value
through fee based models, ETFs will become ever more prevalent in retail investor portfolio
More asset , greater scale, lower cost, more asset coming
Price Product Distribution channel(scale)
Passive investment Product differentiation: Retail- online investing platform
Saturated passive investment passive to smart beta and then by partnering existing ETF
(tracking index) market driving to active. platform
price competition Active or hybrid ETF has been
start rolling out: seeking Alpha;
fee model passive ETF down to thematic investment: Institutional investor-
0.25 percentage point ESG(private market/private partnering with ETF sponsor
credit); replicate hedge fund - retention is critical to
Active investment strategy; Short sell index with continued growth, so they
Charging fair fee by synthetic leverage(Derivative- energetically protect their
Outperforming market Based ETFs, country specific, existing book by CRM via data
sector specific and advisor

Demand- Asset managers then

asset owner like pension fund,
insurance companies, PM

Operation cost- Form of Product

robot advisor, currency denomination cross
listing
For ETFs to flourish even
further in Europe, pragmatic substantial appetite for creating
solutions are needed. These listed and unlisted share classes
solutions should address the in the same product,
 current lack of ETF-specific particularly among Luxembourg
rules and some of the nuances issuers. It allows them to reach
of ETFs – such as transparency, a wider market.
venue choice, clearing and
settlement.’ There is certainly a
considerable agenda in each
area.

New geographic –regulation EMEA after Briexit-

ESG: Sustainable Finance Disclosure Regulation (SFDR) implemented in March 2021. The EU rule
requires asset managers to disclose sustainability risks and better classify funds, which may
encourage the rebranding of more ETPs as ESG strategies

Settlement issue raised by European Securities and Markets Authority(EMSA) Central Securities
Depositories Regulation (CSDR) regime, now due to come into force in 2022
-ETF trading in multi stock exchange
-This involves two settlement legs, ETF shares and a basket of securities A failure of either leg could
result in a fine or potential buy-in. Primary market trades take place when the availability of shares is
exhausted in the secondary market, and a buy-in of the ETF leg could trigger the need for another
primary market trade. This unnecessary churn in the ETF primary market would put more costs into
the secondary market for the ETF shares and would likely increase the cost of trading for the end-
investor without an obvious improvement in settlement discipline

The UK has said it will not implement CSDR. “From an operational perspective,” says Harris, “that
poses challenges. It could potentially fragment settlement. As we understand it today, trades
executed on the LSE and settled in Euroclear Bank are still in scope; those executed OTC and settled
in Crest will be out of scope.” Could this lead to settlement arbitrage where dealers choose to trade
off-order book to avoid the CSDR regime?

1. UCITS: must be adhered to once the product is launched under this directive

2. Local Regulator Guidelines: The domicile of the product will drive the local regulations that need
to be followed in line with the policy of each regulator

3. Markets in Financial Instruments Directive (MiFID) II: A follow on from MiFID, which is regulation
that governs the provision of investment services in financial instruments

4. European Market Infrastructure Regulation (EMIR): Legislation and regulation of over-the-counter

derivatives in Europe

Main Development of ETFs market

Broad acceptance of nontransparent active ETFs and

Exchange traded share classes of existing mutual funds are two key potential developments

Settlement
Trading on ETF

London Stock Exchange’s Gilmore notes marketmakers in fixed income ETFs, who do most of their
business OTC, turned increasingly to the Exchange during this period: “Market-makers typically
transact with clients off-exchange and in normal times might wait some time before managing the
ETF inventory to offset their positions. When they can’t offset this optimally in the OTC market, they
look to the Exchange to better manage and trade this inventory and in order to fulfil settlement
obligations. The OTC market is all bilateral, so traders have counterparty and settlement risk.
Without an orderly, regulated market, market-makers would have been much more exposed.”

Many ETFs provided price discovery, bringing more visibility to bond price movements and providing
investors with another path to enter or exit bond positions

Option trading of ETF

ETF any derivatives

For example, an asset manager might use rich data signals to predict with 90% confidence that a
financial advisor is likely to request a redemption. The manager can then deploy a sales
representative at the right time to redirect the potential outflow into a product that better meets
the financial advisor’s needs, based on what products are attractive to other advisors with similar
profiles—similar to Amazon product recommendations