Every market participant in the European ETF industry knows that Europe or even the EU are far away from a single market when it comes to ETF trading. Respectively, many ETF promoters list their ETFs on different exchanges to reach as many investors as possible. What sounds like a very appropriate approach to maximize the opportunities for ETF distribution also has some negative effects. Since the ETF promoters have to pay fees and expenses for any exchange listing, this means that the ETF promoters needs at least some trading volume in a given ETF on the respective exchange to cover the costs for the listing.
If there isn’t enough investor interest in a given ETF on one or more exchanges, it seems to be suitable to delist the respective ETF from that exchange(s). This may sound logical and easy to achieve, but some market observers or competitors may give negative comments when an ETF promoter takes such measures to ensure the profitability and competitiveness of its product range. Therefore, ETF promoters need to communicate such moves clearly and early enough to their customers and the overall market, to make sure they understand that the de-listing is a moved caused by economic reasons and not a lack of commitment to the market.
Clear and early communication is also needed as a de-listing can have negative impacts for existing investors, since especially retail investors may struggle to sell the respective ETF at an exchange outside their home country since not all (retail) trading facilities offer such services.
To answer the question raised in the headline it can be said that cross-listings on different exchanges in Europe are needed to reach as many potential investors as possible. At the same time ETF promoters need to carefully observe the trading volume and flows on the different exchanges since too many listings might lead to a fragmentation of trading volumes. With regard to this, one needs to bear in mind that institutional investors prefer ETFs with a high trading volume and a resulting a high liquidity since they may want to be able to sell their positions on one exchange as fast as possible at any given point in time. Therefore, de-listings are an appropriate approach for ETF promoters to tackle a possible lack of investor interest caused by the market fragmentation in Europe.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of LSEG Lipper or LSEG.
