Saturday, December 2, 2023

As Markets Turn to ETFs, Nasdaq Forges an Innovative Ecosystem to Shepherd Issuers, Market Makers, and Investors

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By Jason Dibble, Curatia

A resurgent volatility trade, single-stock funds’ emergence, and a hunt for liquidity were among the key trends vaulting exchange-traded funds to prominence in 2022. Anticipating the shift, Nasdaq expanded its ETF team and pioneered a trading framework that attracted liquidity and issuers of groundbreaking funds alike to its platform. 

The initiatives helped fashion an innovative ecosystem that fortified Nasdaq’s position as a global leader in cutting-edge exchange technology — a trend that will continue with an expanded ETF repertoire in 2023.

Dawning ETF Age

Even as asset classes from credit to crypto grappled with market uncertainty in 2022, ETFs emerged as a shining outlier. Amid swirling volatility, investors turned to ETFs for their superior liquidity, intraday tradeability, and muted price swings relative to individual stocks.

ETFs logged $614B in net inflows for the year — their second-highest tally on record, after 2021 — despite headwinds from sliding stock prices. Their surging popularity stood in stark contrast to that of mutual funds: The older investing vehicle weathered $950B in net outflows through mid-December.

ETFs’ 2022 breakout fits snugly into a broader trend that heralds a dawning ETF age. Through November, ETFs have seen 42 consecutive months of net inflows globally, during which time assets have nearly doubled to $9.5T. 

That sustained growth has bolstered ETFs’ market influence. On one trading day in September, ETF volumes hit 29% of total equity transactions in the US.

Anticipating the shift, leading global stock exchange and technology provider Nasdaq positioned itself to shepherd market participants into the unfolding ETF age. It quadrupled the size of its ETF team in 2022 en route to listing 86 new ETFs on the exchange, capturing 20% of all new US launches – a 121% YoY growth rate in new-launch capture. 

In addition, Nasdaq brought 20 existing ETFs with $6B+ in AUM previously listed on other exchanges into the fold. In 2022, it welcomed 21 new issuers to the exchange. All told, Nasdaq boasts more than $1T in AUM across 528 ETPs listed on its exchange, cementing its status as a global leader in exchange traded products.

Innovative Ecosystem

To get there, Nasdaq tapped its investment in some of the industry’s top ETF minds boasting 170 years of combined experience to forge a complete ETF ecosystem meeting the needs of issuers, market makers, and investors alike.

The exchange adopted a simple, low-cost fee structure to provide issuers with pricing transparency. It enhanced price protections in its opening and closing auctions to protect investors from unfavorable executions in an epoch of volatility. And it architected a robust framework to support ETF liquidity by raising incentives for its Designated Liquidity Providers. 

That emphasis on boosting incentives for less-liquid ETFs has helped Nasdaq promote market quality for newly launched and thinly traded funds. It has also resulted in the narrowest ETF spreads of any exchange.

At the same time, Nasdaq has leveraged its unparalleled brand equity and a unique footprint including its seven-story digital tower in Times Square to capture a global audience for new ETF listings from the get-go, using its iconic opening- and closing-bell ceremonies to promote debuting offerings.

The push to build a comprehensive ETF platform has in turn attracted many of the markets’ most innovative new funds to Nasdaq. In October 2021, the Valkyrie Bitcoin Strategy Fund (BTF) debuted on the exchange, becoming one of the first bitcoin futures ETFs to list in the US.

Nasdaq listed the first-ever Shariah-compliant and ESG-aware ETF in the Wahed Dow Jones Islamic World ETF (UMMA) in January 2022.

Then last August, F/m Investments launched the first-ever single-bond Treasury ETFs (UTEN, UTWO, and TBIL) on Nasdaq, allowing retail investors to trade Treasuries frictionlessly for the first time. The offerings also gave professional traders a way to short Treasuries and targeted, tax-efficient exposure to various parts of the yield curve.

Nasdaq’s superior liquidity framework has also encouraged some of the world’s most prominent fund managers to convert existing mutual funds to ETFs — an accelerating trend that could see $1T in assets converted to ETFs in the coming decade, according to Bloomberg Intelligence. Asset management giants such as Franklin Templeton and Fidelity chose Nasdaq for their first-ever mutual fund conversions.

The Journey Ahead

Despite Nasdaq’s progress in scaffolding a one-stop shop for ETF listing services and the buzz it’s generating among issuers and market participants, the work is just beginning.

The ETF team’s next mission is to build out best-in-class data tools and reporting capabilities to complement its high-touch support services spanning the ETF product lifecycle. The enhancement will help issuers streamline their offerings and messaging based on recent trading trends to maximize growth.

To that end, the exchange is poised to release its second annual retail investor survey in Q1, helping market participants gain insight into how a year of volatility has impacted investors’ risk appetite, preferred trading strategies, and more. Understanding how investors are learning about ETFs also helps issuers gauge market demand for prospective funds.

Nasdaq’s innovative ETF platform and broad-based ecosystem of market participants position it as an industry leader. Going forward, the exchange aims to leverage its strong relationships with regulators to advance the market-structure dialogue around ETFs and protect the interests of all market participants.

Market-structure dialogue also benefits from organic discussion among those participants — interactions Nasdaq will foster by hosting physical and virtual events around ETFs.

Through such ongoing efforts to develop an industry-leading ETF ecosystem, the exchange is showcasing a steadfast commitment to supporting issuers, market makers, and investors alike as they navigate the ETF age. 

That commitment is what keeps Nasdaq on the leading edge of innovation.

Jason Dibble is Co-Founder and Editor in Chief at Curatia.

This column was originally published by Curatia LLC, a subscription-based news and analytics platform for traders and technologists. To sign up for a free trial of Curatia’s service, visit

This story appeared on Traders Magazine.

For more on the business of trading, subscribe to Traders Magazine’s weekly newsletter here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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