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How electronic RFQ has unlocked institutional ETF adoption
Institutional investors continue to embrace exchange traded funds ( ETFs ) as a low cost , highly liquid , flexible answer to a wide range of market environments . Accordingly , in the first five years of ETF trading on Tradeweb , when volatility was relatively low and institutional investors were focused on efficiency , transparency and reducing trading costs , ETF volume on Tradeweb ’ s institutional platform amounted to over $ 650 billion . In March 2020 , when the world faced a global pandemic and massive volatility , US ETF average daily volumes ( ADV ) surged 226 % yearover-year ( YoY ), and European ETF volumes climbed 242 % YoY . Now , as we stare down rising inflation and geopolitical tensions , ETF volume is still climbing , with ADVs on the Tradeweb platform in Europe increasing by 24 % to $ 3.8bn and the US reaching a record high of $ 2.5bn in March of this year .
While many of the virtues that have driven the steady adoption of ETFs in institutional markets are similar to those that have helped ETFs become one of the most popular investment vehicles for retail investors , there is more to the institutional ETF phenomenon than just convenience and efficiency . A key innovation that has helped support the steady growth of ETF adoption in institutional markets has been the adoption of the requestfor-quote ( RFQ ) trading protocol , which has applied lessons learned in institutional fixed
The ability to instantly access institutional liquidity providers with a single RFQ and the emergence of additional risk options in the ETF marketplace have driven a sea change in institutional market participant behavior , says Adam Gould , managing director and global head of equities , Tradeweb .
income markets to the ETF marketplace . RFQ has driven a change in the way institutional market participants trade , offering institutional investors the ability to trade large amounts of risk , as well as access to the exposures and liquidity they need , while managing costs .
RFQ branches out Developed initially to support electronic trading in the fixed income markets , Tradeweb ’ s first RFQ for US treasuries was launched in 1998 and quickly gained traction across the platform . Its combination of seamless integration into the trading workflow , flexibility , and instant access to the institutional marketplace of liquidity providers made it an attractive solution to drive better pricing , increased efficiency and immediate execution .
As the protocol developed over the years , many workflow enhancements were added such as straight-through processing , automated execution , as well as list and electronic portfolio trading capabilities . These enhancements set the stage for further expansion into the institutional ETF marketplace . In 2018 , Tradeweb launched its first RFQ equities platform in Europe , paving the way for the global explosion in institutional ETF trading .
Rise of the ETF Meanwhile , as the infrastructure to support large-scale institutional ETF trading was being refined , the ETF market itself was beginning to transform equity markets . Driven by a combination of easy access , low trading costs and strong liquidity , new ETF launches began to proliferate in the mid-2010s . In 2015 , the number of new ETFs launched globally was about 750 . By 2021 , that number had more than doubled to 1,503 . Moreover , the
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