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Deutsche Börse increases transparency in ETF trading

Release date: 21 Feb 2019 | Deutsche Börse Cash Market

Deutsche Börse increases transparency in ETF trading

New key indicator provides information on trading costs over the course of the trading day

Deutsche Börse is providing ETF investors with a new key indicator: The iXLM (intraday Xetra liquidity measure) provides information on how trading costs of an ETF have developed over the course of a trading day. This allows investors to deduce the period in which the trading costs of an ETF were particularly low and to take this information into account for future decisions. The individual key indicator is available for all ETFs traded on Xetra.

"Implicit trading costs amount to a significant part of the total trading costs. By taking the iXLM into account, investors can save on average up to 30 percent of these costs in ETF trading, depending on the time of day," says Stephan Kraus, responsible for the ETF segment at Deutsche Börse.

Trading costs are built on two components. The first being the explicit transaction costs resulting from the processing of the order by banks and stock exchanges, including fees and commissions that are charged directly to the investor. And the second component, the implicit costs resulting from the liquidity of the security. "The implicit costs depend on the situation in the order book and are not reported directly. Investors can assess these costs only to a limited extent," explains Kraus.

For this reason, investors and issuers have been using the Xetra Liquidity Measure (XLM) since 2002 to evaluate the liquidity of securities. For all shares and ETFs in Xetra trading, the XLM calculates the implicit transaction costs for a simultaneous purchase and sale for a certain order size: the lower the XLM, the lower the implicit trading costs.

These costs were previously calculated as a monthly average over the entire trading day. "But the XLM varies considerably over the day," says Kraus. "The new iXLM reflects these fluctuations for ETFs in 30-minute intervals.”

To calculate the iXLM, Deutsche Börse divides the trading day from 9:00 a.m. to 5:30 p.m. into half-hour intervals and calculates the iXLM retroactively for each half hour. The values are published once a month. A current evaluation of all ETFs has shown, that the implicit transaction costs at the best time are up to 30 percent lower than at the worst time during the day. The monthly evaluation is published in the ETF statistics of Deutsche Börse

The product range in Deutsche Börse's XTF segment currently comprises 1,383 ETFs. With this selection and an average monthly trading volume of around 13 billion euros, Xetra is the leading exchange for ETFs in Europe.