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European ETF Trading Costs Decrease 

October 31, 2016

Shanny Basar, Makets Media

A fall in volatility and increased competition have made the trading of exchange-traded funds cheaper in Europe than in the US over the past four quarters according to agency broker ITG.

Data from ITG showed that ETFs in the US were generally cheaper to trade in 2014 but costs have been lower in Europe since the third quarter of last year. The analysis used the ITG Peer Group Database, which contains order-level information from approximately 180 buy-side institutions.

Simon Barriball, head of ETP Trading Europe at ITG, told Markets Media that the difference in costs is due to the majority of US ETFs being traded on an exchange while the majority, possibly between 50% and 70%, of European ETFs are traded over-the-counter.

“When volatility is low OTC prices are risk-adjusted,” added Barriball. “The European ETF market has also become more competitive so margins have been squeezed.”

For example, competition has increased as US issuers have entered the market or purchased European firms. US-based WisdomTree acquired Boost ETP and establishing WisdomTree Europe while US private equity firm Warburg Pincus bought a majority stake in Source, another European ETF issuer. Read more

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