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US. This dispersal complicates sourcing liquidity and executing trades efficiently. ETFs also require a fundamentally different approach from single stocks because they have an intrinsic net asset value. Traders must factor in real-time premiums or discounts, fair value calculations, and venue liquidity across multiple exchanges simultaneously.
Dedicated ETF algorithms have therefore been developed, but they require expertise to use effectively. While innovation is improving execution quality, ETFs remain a more complex segment due to their multi-listing nature and unique price formation process.
Worrell: ETFs are challenging because market infrastructure hasn’ t fully adapted to their rapid growth. A significant portion of ETF trading still happens bilaterally or via RFQ channels, limiting transparency and competition for orders. This makes price discovery more difficult and leaves investors reliant on a handful of counterparties for execution. To address this, in 2020 the London Stock Exchange launched its RFQ 2.0 functionality, allowing RFQ liquidity providers to compete directly with lit and hidden order book liquidity.
We’ re also seeing increasing adoption of ETF-specific algorithms that better incorporate fair value calculations, urgency settings, and multiple liquidity pools. However, adoption takes time, and integrating these tools into established workflows remains a gradual process.
What equities and ETF-focused innovation would you like to see from primary exchanges and MTFs? Warr: Fractional share integration would be a game-changer, allowing investors from all backgrounds to participate in markets through affordable, regular contributions. Most developments so far have been custodial, but exchanges could standardise this capability, broadening access significantly.
Retail investor protection should also be a priority. Exchanges offer the most regulated, transparent execution environments, and drawing more retail flow on-venue would strengthen safeguards. Post-trade innovation is another area, and looking further ahead, leveraging tokenisation and blockchain could streamline settlement, lower costs, and make execution faster and cheaper.
Worrell: Innovation must be meaningful, not fragmentation for its own sake. At LSEG, we focus on developing solutions in partnership with our clients- a prime example is our collaboration with buy-sidefounded LeveL Markets, which operates the ATS Luminex platform, to enhance block trading capabilities in our Turquoise dark book. This partnership ensures we’ re building functionality that adds genuine value to institutional workflow.
We’ re also evolving tools like RFQ 2.0 to improve price competition and execution outcomes for ETFs. The ultimate goal is to make markets more accessible, resilient, and effective for every participant- from retail investors to global asset managers.
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