ETF primary market participation and liquidity resilience during stress events

The rapid growth in exchange-traded fund (ETF) markets creates potential risks to investor protection and financial stability. Using unique transaction data, this research note gives initial findings about the level of participation in ETF primary markets. It also gives our preliminary analysis of how liquidity providers behave in times of stress.

Read the research note (PDF)

We find:

  • ETF primary markets are highly concentrated, particularly for fixed income ETFs, where concerns about ‘liquidity mismatch’ are greatest.
  • However, our initial analysis of stress events provides some evidence that alternative liquidity providers step in during times of market disruption.
  • We do not observe other aspects of participation in these markets that raise concerns about financial stability.

This analysis is our first step in investigating the resilience of ETF markets. Our future work will combine unique regulatory data from primary markets, secondary markets, and markets for underlying assets to systematically explore the links between ETFs and stability.