Electronic platforms continue to gain market share in the trading of equity futures and exchange-traded funds (ETFs) in both North America and the UK, says new research from Greenwich Associates.
Greenwich reports that, in North America, the share of futures trading volume executed electronically increased to 48% in 2011-2012, up from 38% the prior year. North American hedge funds and insurance companies are now executing approximately two-thirds of their futures trading volume on electronic platforms, it says.
Electronic trading’s market share jumped even more dramatically in the UK, where the share of futures trading volume executed electronically grew to 42% from just 24%, as European hedge funds (most of which are based in the UK) ramped up their routing through electronic platforms.
Additionally, Greenwich reports that approximately half of institutional ETF trading volume in the US was executed electronically in 2011-2012, up from just 36% the previous year. And, in the UK, it says that electronic trading more than doubled over the 12-month period to 42% of total ETF trading volume.
However, in continental Europe, the share of futures and ETF trading volume executed electronically actually decreased slightly from 2011 to 2012, Greenwich says. It points to structural features of the European market, such as “country/currency fragmentation and a large number of relatively illiquid small- and mid-cap issues within national markets” as persistent hurdles to growth for electronic platforms.
Nevertheless, it says that it expects electronic trading to continue gaining share overall. “We believe futures, ETFs and — albeit to a lesser degree because of capital commitment issues — options trading business will continue to move rapidly to electronic platforms due to a confluence of two trends,” says Greenwich Associates consultant, Jay Bennett. “First, the changes to derivatives market structure that are still playing out. Second, the economic pressure on both buy-side investors and sell-side brokers to reduce costs and cost-to-serve. In the current environment, electronic execution is a way to lower costs of execution and client coverage.”