However, Tony Barchetto, head of corporate development at Bats, believes concerns may be overblown.
“We think fixed-income ETFs can be the release valve rather than a pain point,” Barchetto said. “We don’t believe they make things worse; they make things better.”
Specifically, Barchetto pointed to the difference between buy and sell prices of ETFs, a key indicator of market liquidity. During periods of market turmoil, the difference between buy and sell prices rises and the amount available to trade declines.
BATS discovered that trading remained reasonably orderly across periods of volatility, including periods like the taper tantrum and more recently during the closure of Third Avenue, a junk bond fund that experienced huge redemptions.
“Yes, you do get less liquid conditions but this is normal,” Barchetto added. “Any asset class, any instrument under stress, is not going to see the same liquidity.”
Furthermore, due to the overall increased trading volumes, ETFs provide underlying bonds an additional source of price discovery, which further bolsters trading across credit products.
Money managers who are interested in learning more about the ETF industry and the investment vehicle can attend the in-person third annual ETF Boot Camp in New York on September 29-30. Want 50% off? Sign-up with a colleague and both use promo code “buddy” at checkout.