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• Multi-lateral Trading Facilities. The most popular are Bloomberg RFQE and Tradeweb.
• On-exchange. ÃÛ¶¹ÊÓƵ ETFs are currently traded on the following stock exchanges: Borsa Italiana, Euronext Amsterdam, London Stock Exchange, Mexican Stock Exchange, SIX Swiss Exchange, XETRA.
• ÌýSystematic Internaliser regime. Bilaterally over the counter versus your broker.
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• Assessing liquidity of UCITS ETF can be challenging as the picture is one of fragmentation.
• Over 80% of UCITS ETF trading (across all providers both by notional and tickets) occurs off the primary listing on exchange via dedicated RFQ MTF (Multi-lateral Trading Facilities) platforms including Tradeweb and Bloomberg RFQE. Simple ADV metrics may not include this explicit liquidity.
• Liquidity of an ETF sub-fund is often fragmented by multiple share classes (ACC/DIS/HSC) listed on different exchanges in many currencies. Therefore, only considering the liquidity of one share class or listing to be indicative of the sub-fund is "incorrect".
• Even more importantly, ADV does not consider implicit liquidity. Implicit liquidity means the liquidity the MM can generate by considering the ETF itself, the underlying constituents, futures or other ETFs as the hedge to an ETF trade. Please consider the following example.
• An ETF tracking the S&P500 that never trades. It has zero explicit liquidity but still billions of dollars of implied liquidity as you can hedge large orders with S&P 500 futures. Indeed, MMs can use futures, the underlying constituents or other ETFs as a hedge.
• You can apply this logic for FI ETFs too. Through the in kind negotiated creation redemption process APs create liquidity by delivering stratified samples of the index according to duration, credit, sector, country and specific risk. The beauty of the ETF wrapper is it is as liquid as the hedge the MM can utilise.
• Clients should consider the explicit liquidity of the ETF (i.e. the ADV of the ETF shares themselves) as well as the implicit liquidity of the ETF (i.e. how much could be traded by assessing the hedge alternatives).

• Over-the-counter (OTC) or off-exchange trading is trading in ETFs directly between the client and their broker dealers. Commonly this is conducted on dedicated platforms called Multi-lateral Trading Facilities (MTFs). MTFs are dedicated trading venues, analogous to an exchange, who employ a Request For Quote methodology for trading. The most popular MTFs are Tradeweb and Bloomberg RFQE.
• Clients select multiple brokers and request a 2-way Quote on Risk and trade with the counterpart offering the best price via a competitive auction. Implicitly the client’s benchmark is the arrival price, i.e. the current bid ask price, using this methodology. Clients can trade 24/5 via this strategy assuming the MTF is open and dealers are quoting. Please reach out to the ETF Capital Markets team for an indication of potential OTC spreads and the broker dealers to include in your RFQ.
• Tradeweb and Bloomberg RFQE also allow clients to trade versus NAV. Clients select multiple brokers and request a 2-way Quote versus NAV and trade with the counterpart showing the tightest spread to NAV via a competitive auction. Clients can specify the NAV date they are targeting and the settlement they would like. Explicitly the client’s benchmark is the NAV price using this methodology. When trading versus NAV clients need to be aware of Fund cut off times, Fund holidays, Market holidays, etc. which can be requested from the ETF Capital Markets team.

• Competition is key in the dealing process and we have a deep pool of Authorised Participants ready to provide liquidity to clients either OTC or on exchange.
• Our APs consist of the major investment banks and proprietary market making firms.

There are several different ways to trade ETFs:

Risk Trading via Multilateral Trading Facilities:

• Clients trade directly on MTFs. MTFs are dedicated trading venues, analogous to an exchange, who employ a Request For Quote methodology for trading.
• Clients select multiple brokers and request a 2-way Quote on Risk and trade with the counterpart offering the best price via a competitive auction.
• Implicitly the client’s benchmark is the arrival price, i.e. the current bid ask price, using this methodology.
• The most popular MTFs are Tradeweb and Bloomberg RFQE.
• In addition, many of the Exchanges offer RFQ Facilities including Borsa Italiana – BTS RFQ, SIX – Quote on Demand, Xetra Enlight, etc.
• Clients can trade 24/5 via this strategy assuming the MTF is open, and dealers are quoting.

NAV trading via MTFs:

• Clients select multiple brokers and request a 2-way Quote versus NAV and trade with the counterpart showing the tightest spread to NAV via a competitive auction.
  
• Explicitly the client’s benchmark is the NAV price using this methodology.
  
• When trading versus NAV clients need to be aware of Fund cut off times, Fund holidays, Market holidays, etc. which can be requested from the ETF Capital Markets team.

Trading via the SI regime

• This involves trading with Investment Banks or Proprietary Market Makers directly and off an official venue. A good example is trading bilaterally via IB Chat on Bloomberg.

On-exchange trading

• Trading directly on the listed stock exchange.
• ÃÛ¶¹ÊÓƵ ETFs are listed on many exchanges around Europe in multiple currencies with both hedged and unhedged share classes.

• Often there can be confusion between the primary and secondary market for ETF trading.
• Clients trade off or on exchange in the secondary market with various Liquidity Providers including Authorized Participants, Official Market Makers and Inter-Dealer Brokers.
• Clients trade in the secondary market on risk or versus the NAV benchmark.
• In the primary market only Authorized Participants can trade versus the ETF Provider.
• APs trade versus the NAV benchmark according to certain conditions as detailed in the AP Agreement which governs trading in the primary market.
• Clients generally never trade versus the ETF provider directly.
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Physical replication

• Execution commissions to purchase the underlying stock.
• Financial Transaction Taxes applicable on the purchases of the underlying stock where relevant
• Stamp duty applicable on the purchases of the underlying stock where relevant.
• Sell Taxes applicable on the sale of the underlying stock where relevant.
• Custody fees applicable on the ETF primary market transaction.
• FX spreads for multi-currency and currency hedged ETFs.
• Capital Gain Taxes applicable on sale of the underlying stock where relevant.

Synthetic replication

• Swap entry/exit fees.

The secondary market spread builds on the components of the NAV spread.

In addition one needs to consider the following:

• Confidence in the iNAV computation.
• Delta hedge risk spread of the underlying stock.
• Delta hedge risk spread of the FX.
• Market maker's ETF inventory.
• Market maker's exposure inventory.
• Market maker's factor view.