Institutional ETF Trading Desk: These are the ETF trading desks that sit at major broker-dealers/investment banks in the sales and trading divisions. These include the major banks in the world, such as Goldman Sachs, J.P. Morgan, Citigroup, Credit Suisse, Deutsche Bank, Cantor Fitzgerald or Morgan Stanley as well as large, global institutional trading firms such as Susquehanna or Knight Capital Group. These institutional trading desks facilitate large ETF order flow for institutional investors and large registered investment advisors (RIAs) and are typically committing capital to facilitate buy/sell orders from their client base. These broker-dealers also typically are set up as authorized participants (APs) and have the ability to create and redeem ETF shares directly with the ETF issuers when appropriate.
Electronic Market Makers/Proprietary Traders/Liquidity Providers: These are proprietary trading firms that are posting bids/offers electronically on the exchanges. These firms typically do not speak directly to clients and engage electronically with buyers and sellers. They are a very important piece of the liquidity picture in ETFs, as they provide the liquidity1 that investors see on the screens when they pull up a quote in an ETF. Some of the major investment banks and trading firms mentioned earlier also have electronic ETF desks that provide liquidity electronically in addition to their client facing facilitation desks.
Depending on the type of client and their custody relationship, there are a variety of ETF trading platforms that source liquidity on their client’s behalf. These firms do not commit capital directly; rather they source ETF liquidity either electronically or through their block liquidity network.
ETF Traders That Do Not Directly Commit Risk Capital
• Custodian ETF Execution Platforms
• Wire House ETF Execution Platforms
• Liquidity Aggregators