Australian financial services giant Macquarie Group is planning an entry into the U.S. exchange traded funds market and the firm is looking to do via ETF market making.
Such a move by Macquarie would put in direct competition with well-known ETF liquidity providers and market makers such as Jane Street, KCG and Wallach-Beth.
“Macquarie, which is a market maker for ETFs domiciled in Asia and Europe, is moving into the United States because it is the biggest ETF market globally,” Managing Director Morgan Potter told Reuters.
ETFs are based of a portfolio of stock holdings, and the ETF’s price reflects the collective movement of its underlying holdings.
Unlike mutual funds, ETFs do not sell holdings in exchange for cash, which would trigger a taxable event. Instead, the ETFs undergo a creation and redemption process in which market makers, authorized participants or large institutional investors swap a basket of securities from the underlying benchmark index for ETF shares, or vice versa. [ETF ‘In-Kind’ Redemptions Help Limit Capital Gains]