Exchange traded funds have not been able to break into the European retail market with as much success as in the U.S. as private transactions and limited trading transparency pervade the European markets, according to a recent report.
In Europe, over-the-counter ETF transactions between large institutions and investment banks account for around 60% of total volume, or two times that in the U.S., reports Emma Dunkley for The Wall Street Journal. European regulators also do not require institutions to report OTC transactions with ETFs, which would limit the transparency of trading volumes and pricing. [European ETFs Face Regulatory Scrutiny]
Furthermore, ETF trades in Europe can be done through different currencies on more than one exchange and in more than one area, which makes it even more difficult to tally total trades in one ETF.
“Even though the London Stock Exchange and Borsa Italiana have merged, for example, there are still unique listings of ETFs in both Milan and London,” Ben Johnson, the London-based director of European ETF research for Morningstar, commented in the WSJ story.
Consequently, the limited transparency will diminish the reliability of the available pricing information, making the markets less efficient. BlackRock (NYSE: BLK) revealed that the reported daily ETF volume in Europe was $6.5 billion in August compared to the $102.6 billion in the U.S.
The ETF industry is currently lobbying for post-trade reporting requirements, hoping to increase transparency and attract retail investors.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.