Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading


Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading


Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Categorized | Capital Markets

Bats seeks to counter ETF stability fears

Posted on September 20, 2016

A Bats logo sits on an an office window on the trading floor of Bats Chi-X Europe©Bloomberg

The largest US equity venue for exchange-traded products has rebuffed claims that the rise in popularity of bond based instruments threatens the stability of financial markets.

Bats Global Markets released a research paper on Tuesday claiming that Exchange Traded Funds could be the “release valve” if bond markets come under intense pressure, rather than exacerbating liquidity and compounding volatile swings in market prices.

    The market for fixed income ETFs continues to boom as long-dated debt has recorded double-digit gains so far this year. Inflows into fixed income ETFs this year stand at $70.35bn, outpacing the larger universe of equity ETFs which have seen inflows of $54bn, according to Bloomberg data.

    Gaining exposure to bonds via an ETF is cheaper and easier to execute than buying bonds outright or through a mutual fund. ETFs allow investors to trade shares on an exchange on a basket of underlying assets, typically trading far more frequently than the assets they seek to track.

    The growing appeal of bond ETFs at a time when bond yields are close to record lows, however worries many in the market. A pronounced rise in bond market yields, as seen during the US taper tantrum of 2013 and the German Bund shock of 2015, is seen being exacerbated by ETF outflows.

    Carl Icahn made headlines last year when he called BlackRock — the largest asset manager in the world and owner of the iShares brand of ETFs — a “very dangerous company”, homing in on the company’s junk bond ETFs that he said could seize up in the face of a shock to markets.

    The Bank for International Settlements’ 2015 annual report also highlighted “the risk of liquidity illusion: market liquidity seems to be ample in normal times, but vanishes quickly during market stress”.

    Regulators have also raised concerns. In August 2015, US trading of equity ETFs was halted a number of times and subsequently prompted Luis Aguilar a commissioner at the US securities and Exchange Commission to ask: “Why ETFs proved so fragile that morning raises many questions, and suggests that it may be time to re-examine the entire ETF ecosystem.’’

    However, Tony Barchetto, head of corporate development at Bats, counters: “We think fixed income ETFs can be the release valve rather than a pain point. We don’t believe they make things worse, they make things better.”

    We think fixed income ETFs can be the release valve rather than a pain point. We don’t believe they make things worse, they make things better

    – Tony Barchetto, Bats

    The Bats research shows the difference between the price to buy and the price to sell an ETF — a key indicator of market liquidity — does increase during periods of turmoil and the amount available to trade declines.

    Bats concluded that trading remained reasonably orderly across a number of historical periods of volatility, including the taper tantrum, and more recently, during the closure of Third Avenue, a junk bond fund that suffered rapid redemptions.

    “Yes, you do get less liquid conditions but this is normal,” said Mr Barchetto. “Any asset class, any instrument under stress, is not going to see the same liquidity.”

    Overall trading volumes also dramatically increase and the research adds that because of high trading volumes, ETFs allow the underlying bond market an additional source of price discovery, helping trading across credit products.

    The rapid growth of bond ETFs follows aggressive global central bank policy contributing to a flood of corporate bond issuance at low interest rates in recent years, with 2016 on pace to be another record year, according to data from Dealogic. Investors have also shifted toward bond ETFs to hedge against declining bond ETFs in the wake of a shrinking credit derivatives market.

    Bats lists over 100 ETFs and 25 fixed income ETFs and is one of the largest ETF exchanges alongside rivals Nasdaq and the New York Stock Exchange’s Arca. BlackRock estimates bond ETFs make up about 0.6 per cent of the $100tn global bond market.