With over 1,800 ETFs and 200 ETPs listed, and a total of over 6,000 ETFs tradable through SIX Swiss Exchange, including ETNs and ETCs under Swiss law, SIX has evolved significantly since it first ventured into ETFs more than two decades ago, according to the exchange’s Head of ETF Sales, David Smith.
Smith says that SIX Swiss Exchange has strived to be innovative in the ETF and ETP space and has led the way in the listing of crypto ETPs, where it now offers 40 different crypto underlyings.
Smith says that its crypto offering has been successful thanks to the depth of the capital markets in Switzerland, where the mix of institutional and retail investors has embraced crypto in the ETF wrapper. “We have a lot of institutional interest in these products and, if you look at trade sizes, you come across quite a few smaller trade sizes in these products, which can arguably be used as an indication of retail flow,” he says.
“A number of factors have driven the growth of ETFs and ETPs,” Smith says. “Across Europe, investors have become more familiar with the product, and the wrapper allows you to employ different investment strategies at low cost.”
Smith says that in Switzerland, there has been an increase in the number of providers offering ETFs via savings plans and repeat business, allowing greater participation from retail investors.
“Active ETFs have grown across this year with more issuers for those types of products,” Smith says, noting that ETF issuers have been the first movers, plus new entrants are looking to wrap their investment strategy within the ETF wrapper.
“What we try to offer is an attractive market to list your product. Switzerland’s capital markets are very deep with a high degree of investor knowledge and, from our perspective, we try to make that listing process as smooth as possible.”
“On the secondary market, we have tried to create a market structure which really helps to facilitate trading of our clients’ ETFs.”
There are 15 registered market makers on SIX Swiss Exchange, including the newly arrived Jane Street. These firms have signed a market-making agreement with SIX and are committed to providing quotes throughout the trading day to meet market-making requirements.
“We also see growth in the number of issuers coming here as Switzerland is a different regulatory regime,” Smith says. “It’s not the EU, and it’s not the UK. The key point is that, in order to access the Swiss market, issuers require a public distribution licence approved by FINMA. Often issuers will bring a Swiss Franc line, which is important for local investors, or a US dollar line, which tends to be heavily traded by Swiss investors.”
Innovations in the secondary market on SIX Swiss Exchange, beyond the wide crypto offering, include the RFQ mechanism Quote on Demand, or QOD, which has become very popular within the Swiss market.
In H1 2024, QOD traded over CHF3.4 billion, which represents a 29.7 per cent rise compared to the same period last year. At the end of 2023, SIX built on the success of QOD by launching a pan-European on-exchange RFQ service, called ETF QOD Europe.
“Through our pan-European on-exchange RFQ mechanism, an investor can trade across the European universe in one single connection and settle it in their local central securities depository (CSD),” Smith explains.
SIX acquired the Spanish exchange, BME, in 2020 and is now looking to expand the ETF business through the Madrid-based exchange.
“It’s not big in terms of listings, but we are looking to expand the ecosystem in Spain,” Smith says. “There is a lot of feedback that investors want to trade more ETFs or see them being issued in the local market, as well as growing retail demand for ETFs.”
There have been structural issues in the market, not least that mutual funds get preferential tax treatment over ETFs. “One of the things we have seen from recent discussions is that the perception of ETFs is changing – there is a change of sentiment between mutual funds and ETFs.”
Smith says that, as an ETF market, SIX wants to grow its position in the European space from a listing and trading perspective, alongside focusing on how it can expand its offerings for investors and grow its ecosystem across Europe as well.