which will lead to some overlapping products

Research by consultancy ETFGI shows that 231 ETPs have been de-listed from European exchanges in the first six months of 2013, more than in any full year, and five times the 42 de-listings seen in the US so far this year.

The number of de-listings is more than four times the 51 ETPs that have actually been closed in Europe. This is because, unlike the US, aluminum foil tape Europe is not a single market and varying regional regulation mean single products are often listed across a number of national exchanges. So, while an issuer may close only one product, this could result in five de-listings.

However, the numerous listings have led to fragmented liquidity in the ETP market, with many issuers now either closing products entirely or de-listing from certain jurisdictions to better focus liquidity in an ETP, marking a change in strategy in the continent.

Deborah Fuhr, founding partner of ETFGI, said: “It is costly to support exchange-traded funds and ETPs being listed on multiple exchanges across Europe. Multiple listings fragments the perceived on-exchange liquidity, which is already low, as 70% of ETF trades are done on an over-the-counter basis.

"There is not a consolidated tape to show the volume of all trades being reported across all of the various exchange listings in Europe and, in most countries, you can market your ETFs based on registering them for sale without the need to list them on the local exchange. So firms are rationalising which ETFs and ETPS they will offer in their product range and where their ETFs and ETPs are listed and cross-listed.”

Mark Hemsley, chief executive of Bats Chi-X Europe, told Financial News: “The flood of money that’s gone into ETPs has grown considerably over the last few years, leading issuers to grow their product ranges, which has meant there are actually too many similar products now. As a result, we are starting to see quite a lot of rationalising of ETPs, added to which there has also been some M&A activity with Credit Suisse and iShares for example, which will lead to some overlapping products disappearing. Issuers were having a land grab to try to be the largest fund in any one underlying asset type."

Matt Johnson, ETF Securities head of distribution for Europe, Middle East and Africa, said there are a number of running costs for issuers for every ETP including listing fees, marketing fees and performance monitoring, which could contribute to some issuers' decisions to de-list products.

The number of ETP de-listings in Europe so far this year compares with 189 in 2012, 109 in 2011 and 44 in 2010.

db X-trackers, the ETP arm of Deutsche Bank, announced plans to close and de-list 36 European ETPs last week, the largest ever number of closures at one time by a single provider.

Initiatives announced in recent months to tackle the liquidity issue for the European ETP market include plans from Bats Chi-X Europe, the largest pan-European cash equities trading platform, to explore using trade order routing techniques to direct investors to the most liquid products.

For example, an investor looking to buy the iShares Euro Stoxx 50 ETF, which is traded on six European exchanges, would be directed to the most liquid of these listings.

Hemsley said: "Eventually we are likely to see a more similar model to the US where there are many more massive ETPs that are very liquid and we hope initiatives like ours and others in the post-trade world will help to get Europe there.”

Europe’s settlement giant Euroclear and BlackRock the owner of iShares have also made a move to clear-up the Europe ETP market, creating a new type of iShares ETF that has an international security structure. This means the fund will be both issued and settled in the international central securities depository operated by Euroclear, instead of within a national central securities depository.
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