EXCHANGES: Xetra, Xetra, read all about it

NewspaperStock exchanges on which ETFs are traded are central to a product's success and dialogue between exchanges and providers is growing. Angele Spiteri Paris takes a closer look at Deutsche Borse's Xetra.

The role of an exchange is vital to the success of an ETF. The fact that these products are traded on stock exchanges lends ETFs one of their most important characteristics – liquidity.

One of Europe’s foremost exchanges on which ETFs are listed is Germany’s Deutsche Börse. In 2010, its ETF business, which it calls the XTF segment, saw record growth. Xetra remained the most attractive trading platform for ETFs in Europe in 2010 with a market share of 37%.

According to its annual figures, Deutsche Börse saw its fund assets rise by 32% to €159bn. Six new issuers and 216 new funds meant the sector grew faster than ever since its creation.

Stephan Kraus, vice president, institutional equity at Deutsche Börse, explains what an exchange offers an ETF provider.

He says: “Exchanges enable ETF providers to distribute ETF shares to investors in a cost-effective way. Deutsche Börse, for example, provides more than 240 trading members from 18 countries with direct access to ETF trading via its electronic trading system Xetra.

“ETF providers also seek a platform that incentivises liquidity provision, ideally by offering both highly competitive pricing models as well as attractive market-making programs in order to minimise total transaction costs for investors.”

Kraus says that another vital facet of the ETF market and its development is education. “It has become increasingly important for exchanges to join forces with issuers in the education of investors and advisors on the advantages and benefits of ETFs. Educational measures may include seminars, manuals and brochures as well as detailed fact sheets and statistics on individual ETFs and their respective trading activity.”

Several ETFs are cross-listed and can be found on a number of the major European exchanges. BNP Paribas, however, has chosen to delist a number of its duplicate products and focus solely on two exchanges – Deutsche Börse and the Swiss market.

It might be wondered whether the exchanges have any apprehension that ETF providers concentrate their business on one chosen exchange, leaving other players floundering, in terms of ETFs.

But given Deutsche Börse’s position in the market, Kraus is not worried: “With approximately 800 products available, Deutsche Börse currently features the largest number of ETF listings in Europe. Any decision to delist certain products would be guided primarily by the issuer’s listing strategy, which we believe is subject to regular reviews based upon new market developments. In many cases such decisions would be triggered by changes in general investment trends and demand patterns at an investor level.”

Kraus is right to not be too concerned. After all, if an ETF provider wants to sell its product in a particular European country, it has to list on that country’s exchange.

“One of the main reasons for issuers to list ETFs on a specific exchange is to expand their distribution range to local investors in the corresponding market,” he says. “This is particularly true for providers who, in addition to institutional investors, also target retail investors with their product offering as many investors in the retail space lack the ability to access non-domestic markets at reasonable costs.”

©2011 funds europe