Question of the Week - June 14th 2016

How does trading in Illiquid ETFs compare to highly liquid etfs in the US?


Chart 1: Distribution of US ETF trading costs across ETF liquidity buckets 


Chart 2: US ETF order sizes by liquidity bucket 


Chart 3: Percent of total value traded in each ETF liquidity bucket 


  • As the prevalence of ETFs in the US marketplace grows, ETF trading trends deserve increased scrutiny. Using the ITG Peer Group Database, we examine transaction costs, order sizes and value traded across ETFs of varying liquidity.
  • US ETFs were grouped into four buckets based on trading volume from 2015Q1 through 2016Q1.
  • As expected, trading costs for the three most liquid ETFs had the tightest distribution, ranging from -4 bps to +4 bps. The next 10 and next 100 ETFs had similarly tight realized cost distributions. The remaining ETFs had markedly wider cost distributions, with a cost of -12 bps at the 10th percentile.
  • Institutions demanded more liquidity when trading the illiquid ETFs; the average order size of $150k represented 84% MDV for the least liquid group. Comparatively, the average order size for the most liquid ETFs was $1M and represented 1% MDV
  • The least liquid ETFs represented between 16 and 20% of overall ETF volume each quarter while the top three ETFs accounted for between 20 and 30% of volume.


Q1 2015 – Q1 2016 US ETF trading data was sourced from the ITG Peer Group Database. Implementation shortfall costs are measured relative to the release to the desk and are expressed in basis points.


Refer to ITG Peer Analytics for information on available ITG Peer Group Database based analytics.

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