Fixed Income ETFs: Bridging the Liquidity Divide

The regulatory burdens of the Volcker Rule, Basel III, and the Liquidity Coverage Ratio (LCR) have forced banks to change the manner in which they provide liquidity to investors. As large banks tackle the challenges posed by the new regulatory regime, they are increasingly reassessing their business models. Standardization, automation, and electronification have become all the rage and the buzzwords for a new paradigm in the fixed income universe. ETFs fit brilliantly into this new world as a product that is simple, standardized, and readily adaptable to trading over electronic mediums.

Word is spreading and an ever-increasing institutional appetite has been the principal driver behind recent growth. As liquidity in the cash market continues to wane, the exchange-traded fund (ETF) is emerging as a premiere alternative product that allows end-users to navigate an increasingly difficult market environment- a fact reflected in the nine-fold growth in assets under management for corporate bond ETFs since 2009. In this TABB Group report, Fixed Income ETFs : Bridging the Liquidity Divide, TABB Group looks at the meteoric growth in the fixed income ETF market, the liquidity dynamics between these ETFs and their underlying instruments, and the ways in which broker/dealers are building out their fixed income ETF businesses to take advantage of this growing market.