- ETF Securities’ Currency ETCs spark strong interest from trading community just one week after LSE listing ….
- World’s largest and Europe’s first Exchange Traded Currency platform
- Just one week after listing on the LSE, Currency ETCs are now supported by seven liquidity providers
- Four major Multilateral Trading Facilities show strong interest
- Currency ETCs provide 18 long or short exposures to G-10 currencies with long USD Currency ETCs outperforming last week
- Currency ETCs include exposure to local interest rates and fully collateralised to minimise counterparty risks
ETF Securities (ETFS) is pleased to announce that its newly launched Exchange Traded Currencies (Currency ETCs) are now supported by seven liquidity providers on the London Stock Exchange (LSE). In addition, two Multilateral Trading Facilities (MTFs) have started quoting the Currency ETCs with another two MTF’s planning to quote the new ETCs within the next few weeks.
The first 18 Currency ETCs were listed on the LSE on the 12th November and track MSFX Currency IndicesSM. Since listing, the Currency ETCs have rapidly generated interest with seven liquidity providers signing up to provide investors access to these new securities. Specialist market-making firms Flow Traders, Nyenburgh, Bluefin Europe and IMC will provide “on screen” liquidity and two way prices while Morgan Stanley, Merrill Lynch and Fortis have signed up as Authorised Participants.
Liquidity providers are responsible for dealing in the ETCs and play an important role in providing liquidity in the marketplace through the posting of firm bid and ask prices with a minimum size for each ETC during Exchange trading hours, while also facilitating the creation/redemption process. This ensures that there will always be a deep two-way market, that investors should always be able to buy or sell their holdings on equal terms and that the ETC tracks the underlying index.
MTFs have also shown strong interest in Europe’s first 18 Currency ETCs. The ETCs started trading on PLUS Markets on Tuesday 17th November and then NASDAQ OMX Europe on Monday 23rd November. Other major MTFs including Chi-X Europe and Turquoise have also shown interest to quote the Currency ETCs on their platforms in the coming weeks.
Similar to Exchange Traded Funds (ETFs), ETCs are liquid, accessible and simple. ETCs can be created and redeemed on a continuous basis by market makers, matching the tremendous liquidity of the underlying foreign exchange markets but traded on a regulated exchange in the same way as an equity. The average daily turnover of the global FX market is about $3.2 trillion which compares to the average daily turnover of $450 billion for global equities, $48 billion for the New York Stock Exchange and $6 billion for the London Stock Exchange. Thus currencies are much more liquid than equities.
The 18 initial Currency ETCs provide long or short passive exposure to G10 currencies versus the US Dollar and include AUD, CAD, CHF, EUR, GBP, JPY, NOK, NZK and SEK. The ETCs also provide exposure to local interest rates in addition to FX movements. For example the implied interest rate incorporated into the MSFX Long Australian Dollar IndexSM averaged approximately 5% p.a. over the past five years.
ETF Securities launched the Currency ETC platform due to investor demand for secure, transparent and liquid exchange traded products. Currency ETCs are fully backed* by eligible collateral to the value of at least 100% of the total value of all Currency ETCs outstanding which is held in a segregated custody account with BNY Mellon. The collateral is adjusted daily to ensure credit risk is minimised. Currency ETCs are backed by the same eligible collateral criteria as ETF Securities’ existing Commodity ETCs. With ETF Securities’ Commodity ETC assets having nearly tripled in 2009 to $17 billion and volumes having doubled to over $1 billion per week, it is clear that investors have widely accepted the ETC structure as a secure vehicle of choice for exposure to commodities. As a result, the ETC product structure has been replicated to include currencies.
Last week, Currency ETCs which were Long USD performed best as the USD strengthened over the week. The table below shows the best performing indices over the past week and past 12 months. In each case, long or short versions of the higher yielding G-10 currency indices were in the top five performers.
|MSFX Currency Indices over the past week|
|Short New Zealand Dollar Index (TR)||2.2%|
|Short Canadian Dollar Index (TR)||2.1%|
|Short Australian Dollar Index (TR)||1.9%|
|Short Swedish Krona Index (TR)||1.8%|
|Short Norwegian Krone Index (TR)||1.0%|
|MSFX Currency Indices over the past 12 months|
|Long Australian Dollar Index (TR)||54.2%|
|Long New Zealand Dollar Index (TR)||42.8%|
|Long Norwegian Krone Index (TR)||29.5%|
|Long Canadian Dollar Index (TR)||21.4%|
|Long Swedish Krona Index (TR)||20.2%|
Source: Bloomberg, Returns are in USD to 20 November 09 from 20 November 08 (1Yr).
Nicholas Brooks, Head of Research and Investment Strategy, ETF Securities, commented:
“There has been strong investor interest in access to global foreign exchange markets through exchange traded products including Currency ETCs. Most of our investors are large institutions with diverse exposure to a range of markets and asset classes. FX is the one key asset class that most have not had access to in a convenient ETC format. In the first week of trading investors appeared more cautious on the risk trade following more subdued macro data. Accordingly, ETFS Short NZD Long USD (SNZD) was the leading Currency ETC, gaining 2.2%, while ETFS Short AUD Long USD (SAUD) followed closely with a gain of 1.9%. Ongoing concerns about the UK government’s debt burden weighed on sterling, pushing ETFS Long GBP Short USD (LGBP) lower by 1.0% over the week. In terms of LSE trading volumes, over 60% of the volume involved AUD trades, with GBP trades accounting for 20% of volume and EUR trades making up around 12%.
Source: ETFWorld – ETFSecurities