Research Note: Fixed Income ETFs: secondary market participation and resilience during times of stress

In this paper, we aim to analyse the exchange-traded fund (ETF) secondary market from the perspective of financial stability.

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The rapid growth in exchange-traded fund (ETF) markets creates potential risks to investor protection and financial stability. 

Our analysis finds that ETF secondary markets are somewhat concentrated. However, a subset of Authorised Participants (the only market participants who can create and redeem shares in the primary market) are active in both primary and secondary markets and act as a buffer between these. 

Only around a third of the net selling pressure in the secondary market manifests in redemptions in the primary market and this result holds across observed periods of market stress in our sample. 

Looking in more detail at the high yield fixed income segment, we do see some features that suggest this market may be more fragile during periods of stress. 

Finally, we document that ETFs with less liquid underlying are more heavily traded. This finding underlines the role of ETFs in creating opportunities for trading exposure to illiquid securities.


Matteo Aquilina, Karen Croxson, Gian Giacomo Valentini and Zhuowei Sun.


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