André Buck, the first quarter was characterized by high volatility and high trading volumes. What is your interim assessment regarding the ETF sector?
The market turmoil was and is a major challenge for the entire financial industry. The current picture looks encouraging. All market participants have contributed to cope with this market volatility. After over 10 years of solid growth and positive market developments, the ETF industry was particularly challenged to prove itself in an extremely difficult situation. Overall, the first quarter and especially March were characterised by very high levels of activity. Issuers and especially market makers proved to be solid and reliable providers of liquidity in these turbulent weeks, meeting the needs of investors. Thus, 20 years after the listing of the first ETF on the Swiss Stock Exchange, we continue to be in a good position for further growth.
What were the highlights in Q1?
Spreads were in line with their underlyings and tradability was very good. In the case of equity ETFs, the price discovery leadership was with the underlyings. Bond ETFs partly helped the bond market with price discovery and acted as an additional source of liquidity. During the month of March, the number of trades per trading day tripled from 4'177 (average 2019) to 11'945, before settling at around 8'000 in April.
In terms of asset classes, I noticed the precious metal ETFs that pertain to the commodities category. On the Swiss Stock Exchange, they combine around 6% of the listed ETFs, but were responsible for over 12% of the turnover in the first quarter of 2020. A gold ETF was responsible for the second largest number of transactions in this period, with 11'574, just behind an ETF on the SMI with 11'782 trades. This underscores the wide range of ETFs available on the Swiss Stock Exchange and their importance as a source of liquidity for the market.
Was there a drop in listings during this period?
I’m pleased to say this was not the case. Our issuers and market makers stayed active during these turbulent days and expanded their product range. We were happy to welcome Credit Suisse Asset Management as a new ETF issuer in mid-March. Also completed was the announced acquisition of the Commerzbank ETFs by Société Générale, after all 750 products that changed market maker in this challenging month. In March, 21 new ETFs were listed, and 38 in total for the first three months of the year.
How has the market for structured products developed?
The past has shown that in turbulent times investors focus on index underlyings. This was no different this time, the figures are really impressive. In March, for example, over a third of the total of 135'141 transactions were concluded in products with the SMI or Dax as underlyings; the same applies for leveraged products such as warrants, mini-futures, knock-out warrants and constant leverage certificates – in all categories the most traded underlyings were index-based.
What was the impact on the trading side?
Due to the major market fluctuations, a few liquidity providers struggled to fulfil their market maker duties quickly enough. We recorded 250 mistrades in March, compared with 82 in February. As a result, our market control unit decided to extend stop trading in structured products from 30 seconds to 5 minutes. This gives the liquidity provider more time to set a fair price. For ETFs and equities, stop trading is also 5 minutes. This quickly led to the desired deceleration and improved pricing by the liquidity providers. With a trading volume of around CHF 9 bn after just over three months, we assume that trading volume can be expected to grow in 2020 as a whole as well, after the increase of around 18% we’ve already seen in 2019, to CHF 17.7 bn.
How has the high volatility affected the number of structured product listings?
We’ve seen a new record of 10'173 new listings, of which 8'979 were leveraged products. On the one hand, this shows that in the previous months mainly investment products were issued, while on the other hand there was demand for leverage products – which is absolutely understandable in view of the strong fluctuations on the equity markets. Once again, around 30% of new issues of leverage products related to index underlyings, which is also a new record.
Does this mean that CONNEXOR was also actively used?
Indeed! In March, over 230'000 new products were issued through our reference data tool for structured products. The previous record month – October 2018 with 135'000 issues – was thus significantly exceeded. The total of all new issues via CONNEXOR in the first quarter amounts to over 445'000, including the 19'544 for the stock exchange. Here too, we are on the way to a record year, as we had around 1.1 million new products in the whole of 2019.
Is this just the result of the volatility?
Remarkably, this growth is not only due to the market turbulence. In recent years, we have invested heavily in the expansion and automation of CONNEXOR. The number of issuers has almost doubled to currently 38, and more are already in the onboarding process. So CONNEXOR not only makes the Swiss market more efficient, but products are also being distributed for other European markets – and we are working on the expansion in the Asian market.
What developments do you expect for Q2 and beyond?
The market turbulences have demonstrated how important a functioning, stable stock exchange is. Discussions about closing them fail to recognize the importance of open capital markets to ensure global economic stability, especially in phases of external shocks. The Swiss Stock Exchange is constantly investing in innovation in order to offer its participants the best and most efficient trading platform as well as new products and services.
Can you be more specific about what is currently in the pipeline?
With our release planned for June, we will adapt the trading model for structured products even better to current market conditions for the benefit of issuers and investors alike. In addition, we will introduce "Trading-At-Last", a new trading period for equity trading at the closing price in the Central Limit Order Book after the closing auction. Towards the end of the year, we will also further develop the ETF trading platform, to meet the needs of institutional clients in particular. As you can see, the stock exchange never stands still, the markets as well as the customers challenge us again and again to improve our trading platform to meet the current requirements. Well done!
André Buck, thank you very much for this interview.
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