Active ETF hopefuls in Europe are struggling to source market making support as managers rush to deliver their investment strategies via the ETF wrapper.
Liquidity providers are being increasingly selective on which active managers they take on amid a surge in demand for their services, according to industry participants.
Liquidity providers such as Jane Street and Flow Traders fulfil a crucial role in the intermediation of ETF trading. Authorised participants (APs) create and redeem ETF shares on the primary market while market makers (MMs) match buyers with sellers on the secondary market.
As ETF Stream recently explored, active ETFs – especially more high-conviction strategies – have no highly liquid and perfectly correlated futures for liquidity providers to use as a hedge and therefore trade at wider bid-ask spreads to their passive counterparts. This can deter investors worried…
