2021 has been a landmark year for the London Stock Exchange
2021 has been something of a landmark year for the London Stock Exchange and its Exchange Traded Products (ETPs).
Hetal Patel, Manager, Exchange Traded Products, London Stock Exchange, explains that on 3 February 2021, trading in ETPs accounted for 23 per cent of the total London Stock Exchange order book turnover.
The first Exchange Traded Fund (ETF) launched in April 2000, and its been in the business for more than 20 years.
“In terms of the key benefits for new issuers listing here, we have deep access to an international liquidity pool,” Patel says. “We have over 80 trading member firms from more than 20 countries.”
A deep liquidity pool translates to a broad and stable investor base. “Investors are very comfortable with the ETF story in London,” Patel says, reporting that the last six years, in particular, have seen 100 per cent growth in ETP trading on the London Stock Exchange.
All the current ETF listings in London are UCITs-compliant, although London also offers a route for non-UCITs ETFs. “They are all listed on the Main Market of the London Stock Exchange which gives you the gold standard of listing, with enhanced visibility and status,” Patel says.
London is a well-respected financial centre with a strong regulatory environment, and a very robust legal framework for ETPs. “All our ETPs go through a simple but fair process to list with us,” she says.
Post-Brexit, the UK government is committed to promoting and supporting London as an international financial centre. “It is fair to say that our ETP business has continued strongly if not grown since Brexit,” Patel says. “The expectation was that it would affect listings but actually this year alone we have seen 251 new ETP listings compared with 174 for the same period in 2020.”
“The primary and secondary markets go hand in hand with ETPs,” Patel says. “We help companies issue ETPs and then look after them from the secondary market side with a proven track record of limited disruptions and systematic procedures in place.”
The London Stock Exchange’s price monitoring functionality is constantly evolving to respond to clients’ changing needs, Patel says, and instead, employs a security-by-security price monitoring mechanism. Circuit breakers are tools that temporarily halt trading activity or delay an auction execution if certain price movement tolerances would be breached. Following the halt, the affected security will be placed into auction allowing a price to be formed in an orderly fashion.
“Also, we have that central time zone which is very helpful for our member firms who trade from across the world,” she says. Multi-currency facilities on the ETPs come in at no additional cost. “When an issuer lists, they can list one product with four or five currencies at no extra cost – we only charge once which is a big hit with our issuers.”
In fact, over two-thirds of trading happens in the US dollar lines, proving the international nature of the London Stock Exchange.
2021 has been the year of diverse innovative listings, with thematic ETPs dominating.
“We are seeing more and more diverse products listing with us such as space, airlines or gaming,” she says, with the top 20 traded ETPs across the whole stable of ETPs in core products as well as themes and innovation.
London has also seen growing institutional activity happening on exchange, with more brokers utilising new execution tools, such as the development of ETF algorithms, to obtain best execution. Furthermore, RFQ 2.0, launched by the London Stock Exchange in 2020, is seeing almost GBP4 million of trading daily across several hundred ETPs, and as more RFQ requestors and responders adopt the new order type, volumes are expected to continue to grow.
“We are placed in the best position to provide execution and liquidity,” Patel says.
This year saw GBP140 billion traded in the exchange’s ETPs, with an average daily turnover of GBP604 million.
“Investors are attracted by our clear transparency pre-trade, our multi-lateral partnerships and anonymity, and the fact that you have a well-established marketplace where you can connect buyers and sellers together. We are a central hub which brings people together.”
It is also tax efficient to trade ETPs on the London Stock Exchange as there is no stamp duty charged.
One theme has seen extraordinary growth this year – Environmental, Social and Governance (ESG).
“For us, when we look at this year, even compared to last year, there seems to be a COP26 effect with ESG ETFs enjoying massive growth – we have 244 ETFs with ESG filters listed in London and this year alone we have listed 80 new ESG ETFs, which represent almost half of all the ETFs listed this year,” Patel says.
There is a strong pipeline of new ETP listings still ahead in the last days of 2021. “We are on target to record the third highest year for listings ever in ETPs, which is great for us as we end the year with a big flurry,” she says.