ETP market capitalisation – a new WFE indicator

Published by: The WFE Research Team Sep 2019

Exchange-traded products (ETPs), and in particular exchange-traded funds (ETFs), have had a key role in fostering the recent growth of passive investment.  [1],  [2] ETPs are appealing to traders because they provide the same diversification opportunities as mutual funds, with the added benefit that ETPs can be traded intraday just like regular stocks. The combination of accessibility and typically low management fees has contributed greatly to the growth of ETFs assets worldwide, which amounted to over 4.7 trillion USD as of end of 2018 (source: ICI). The United States represented the lion’s share of this market, with over 3.4 trillion USD assets under management (AUM) invested in ETFs as of end of 2018 (source: ICI). Europe followed, with 910.34 billion USD AUM invested in ETFs as of end of July 2019 (source: ETFgi).

Given the crucial role of ETPs as an investment and trading vehicle, the WFE has introduced among their statistics an exchange-level indicator of ETP market size: ETP market capitalisation. Collecting a measure of ETP market size is important because it provides an indication of the size of passive investing on individual markets and makes it feasible to estimate investment inflows and outflows in the ETP segment on both a regional and global level.  We expect this indicator to be of practical use for WFE’s stakeholders: mainly exchanges and regulators, but also for consultants and academics interested in further study, as the influence of high levels of passive investment on market liquidity and financial stability is still to be well understood.

Simply put, an exchange’s ETP market capitalisation is calculated by multiplying the total number of shares outstanding of each ETP listed on the exchange by its respective NAV (or closing price), and then summing the individual market capitalisation values across all listed ETPs.

Our ETP market capitalisation data  [3] shows that listing of exchange-traded products is a global phenomenon, affecting both developed and emerging markets alike. Perhaps naturally, developed exchanges hold the biggest share of this market, both in terms of the number of listings and market capitalisation. With 1591 ETP listings and a market capitalisation of over 3.1 Trillion USD as of June 2019, ICE (Arca) was the largest ETP listing venue in North America and worldwide. In the same region Nasdaq followed, with over 350 listed ETPs and a market capitalisation of slightly over 600 billion USD.  Third was Cboe Global Markets, home to over 300 ETP listings constituting a market capitalisation of nearly 275.9 billion USD. TMX Group had nearly 800 listings, for a market capitalisation of over 136.1 billion USD. In the Asia-Pacific region, the Japan Stock Exchange was the biggest exchange for ETPs as of June 2019 (over 230 listings, for market capitalisation of over 354.4 billion USD), followed by the Hong Kong Stock Exchange (over 210 listings, for market capitalisation of over 97 billion USD).  In the EMEA region, in June 2019 the Tel-Aviv Stock Exchange had 590 ETP listings with a market capitalisation of 25.9 billion USD. The European region, which present a unique market structure for the ETP market and is characterised by conspicuous levels of ETP cross-listings, accounted instead for over 815.6 billion USD and 1891 listed instruments.[4]   

Several emerging market exchanges are strengthening their position in this space, and ETP offerings can be found in an increasing number of jurisdictions as opposed to a few years ago. In Asia, the Taipei Exchange was the largest market in terms of ETP market capitalisation as of June 2019, with 75 listings accounting for over 25.5 billion USD. The Taiwan Stock Exchange ranked second (130 listings, for a market capitalisation of over 14.8 billion USD), followed by the Shenzhen Stock Exchange (39 listings, for over 13.2 billion USD).  In the Americas region, B3 had 18 sizable listings, accounting for nearly 5 billion USD market capitalisation in June 2019; in the EMEA region the Johannesburg Stock Exchange was instead home to 111 ETPs for a market capitalisation of 6.7 billion USD.

The collection of granular ETP data revealed that ETPs are often cross listed between different jurisdictions. While cross-listing happens globally, it is a prominent feature of the European ETP market structure: most ETPs issued in Europe are in fact cross-listed on several exchanges, and unlike the US stock market, there is no clear indication of primary/secondary listings. As such, it is impossible to attribute market capitalisation to individual exchanges in Europe.  Our rich ETP data, however, has allowed us to estimate the extent of cross-listing among European exchanges, an exercise that (to the best of our knowledge) was never performed before. Table 1 summarises the results of our analysis:

 Table 1: Extent of cross-listing in the European ETP market.


Cross listed on:

Instruments

Market capitalisation

Value (full number)

Share of total

Value (USD million)

Share of total

One exchange only

                         229

12.11%

   13,662.82

1.68%

More than one exchange

                      1,662

87.89%

       801,956.81

98.32%

Of which:





Listed on two exchanges

                         476

25.17%

  111,398.72

13.66%

Listed on three exchanges

                         340

17.98%

   71,780.71

8.80%

Listed on four exchanges

                         286

15.12%

   77,095.72

9.45%

Listed on five exchanges

                         318

16.82%

  224,068.44

27.47%

Listed on six exchanges

                         242

12.80%

  317,613.19

38.94%

Total

                      1,891 

100%

  815,619.63 

100%

Note: These figures include instruments listed on (in alphabetical order): Börse Stuttgart, Cboe Europe, Deutsche Börse AG, Euronext, London Stock Exchange Group, Luxembourg Stock Exchange, SIX Swiss Exchange. Source: submitting exchanges; Thomson Reuters.

As evident from Table 1, almost all ETPs listed in Europe are listed on more than one exchange (87.8%), accounting for essentially all market capitalisation in the region (98.3%).

As already mentioned, cross-listing is not only a European phenomenon. We estimate that cross-listing of ETPs between non-European exchanges accounts for roughly 3.5 billion USD, which is quite small compared to the extent of cross-listing in Europe. 

We believe that the ETP data we are now collecting and publishing will lead to thought provoking research on the influence of ETP growth and flows on markets generally, as well as unique market structure issues facing ETPs such as the impact of cross listing on price discovery, market fragmentation and best execution for ETPs.  


 [1] Exchange traded products are a wide set of securities that includes exchange traded funds (ETFs), as well as exchange traded commodities (ETCs), instruments that “track the performance of an underlying commodity, commodity future or commodity index” (Deutsche Börse Xetra Website), and exchange traded notes (ETNs), “exchange-traded debt securities that track the performance of underlying reference indices” (Deutsche Börse Xetra Website).

 [2] See https://www.bloomberg.com/professional/blog/end-era-passive-equity-funds-surpass-active-epic-shift/

[3] Reflects information submitted by WFE members as of June 2019.

[4] This estimate is overall in line with the estimates provided by ETFgi and BlackRock.