Market innovation leads LSE’s ETF growth
London Stock Exchange: Best European Exchange for Trading ETFs – Ivan Gilmore, Head of Exchange Traded Products, Fixed Income & Alternatives, London Stock Exchange comments that MiFID II made ETFs MiFID instruments and as such brought in pre- and post-trade transparency for them. “We are aware that it is a fragmented and competitive landscape,” he says. “There are lots of issuers competing with products, exchanges competing for listings, and platforms competing for trading away from those venues.
“We compete by innovating,” he says.
Gilmore says that there has been a concerted effort to examine, within the ETF ecosystem, where London Stock Exchange can innovate.
Gilmore comments that the ETF industry is itself an innovative ecosystem, coming up 21 years old in Europe, bringing with it new types of ETPs such as those based on ESG, investment themes, or the leveraged variety that offers triple exposure to stocks such as Tesla.
“Exchanges are also trying to innovate both in terms of listing and their trading proposition which are the two ways that we think about our business,” he says. “The year we have just had, with all the volatility of earlier last year, the one thing we launched in 2019 which had the greatest impact in 2020 was ETP price monitoring extensions around the market open.”
Typically, equity models at exchanges provide certain types of price monitoring to allow trading to resume after, for example, profit warnings or large price moves as a result of merger and arbitrage activity. “Historically, we had used the same price monitoring for ETPs, but following volatility seen in early 2018, 2019 saw us introducing new price monitoring extensions tailored for ETPs, delaying the market open for any ETP that is moving significantly away from a reference price. It gives more time for people placing orders and market makers trying to make prices around the market open efficiently. It gives everyone a bit more time and helps prevent an adverse opening price.
“It’s a very rules-based approach and we are proud at London Stock Exchange of how we manage price monitoring extensions around the market open, and issuers really value that innovation. Just because ETFs trade on an equity market venue, it doesn’t mean that we don’t innovate specific to ETFs.”
More changes will be coming in 2020 on the circuit breaker methodology. “We are continually trying to bring in new enhancements to our circuit breaker methodologies that will increasingly help the trading community get better trading outcomes on the exchange,” he says.
“We are very aware of how trading has changed over the last few years and how what was referred to as over-the-counter has increasingly gone on venue, so we have developed RFQ 2.0, a truly innovative on exchange order type.
“It’s not a drawn-out process or a negotiation, it’s an order type which simply means that people can trade using the RFQ protocol and access different types of liquidity at the same time and in the same place.”
Gilmore also comments on ESG ETFs, observing that over 2020, close to half of the exchange’s new ETF listings were ESG funds, at 46 per cent, and this year to early February has already seen 30 per cent of new ETF listings in ESG.
“It’s a continuation of that theme and working with ETF issuers on these new launches, we really try to support issuers in bringing these sustainable listings to market,” he says.
Ivan Gilmore, Head of Exchange Traded Products, Fixed Income & Alternatives, London Stock Exchange
Ivan joined London Stock Exchange in October 2017 as Head of Exchange Traded Products and Global Product Development. Prior to joining London Stock Exchange, Ivan was at KCG, where he was Head of ETF Client Strategy & Distribution. Ivan has over 20 years’ experience in financial markets, having spent 7 years at Goldman Sachs as an Equity Trader and 8 years at DE Shaw LLP (London), where he was European Head of Trading for the US multi-strategy hedge fund. He started his career in Tokyo in 1997 as an equity trader, before moving to London in 1999.
Ivan has a Bachelor of Civil Law (BCL) from University College Dublin and a postgraduate Higher Diploma in Business Studies, also from UCD.