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Rating:ETF Markets  Calm After Knight's Sinking, Say Honchos Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, August 03, 2012

ETF Markets Calm After Knight's Sinking, Say Honchos

Reported by Chris Cumming

This morning, MFWire linked to several stories claiming that the chaos at Knight Capital, reportedly the biggest market maker in the ETF space, has disrupted trading. But today MFWire spoke with several ETF execs who said the trouble at Knight has had hardly any impact on their business.

So if you're worried about reports of widening spreads and trading chaos -- like the IndexUniverse article stating that spreads have nearly doubled, to 94 basis points from 56 -- take a deep breath and relax.

"The situation at Knight has not caused any meaningful disruption to the trading of ETFs," said Robert Holderith, president of Emerging Global Advisors, which sponsors nineteen ETFs. "Knight is the lead market maker on a handful of our ETFs, and so far the spreads have not been meaningfully different."

Brint Frith, president of Javelin Investment Management, said that the bigger RIAs that focus on ETFs, may have seen some impacts as a result of underlying investments "getting out of wack" if they had happened to be doing a market transaction at the time of the glitch. But as far as Javelin is concerned, the Knight Capital glitch "really didn't affect" the firm's ETF business on Wednesday.

"I'm sure some ETFs saw expanded volume temporarily, but it probably didn't impact shareholders nor AUM very much," Frith added. "Frankly, I would find it hard to believe that there was much impact on any ETF just because of the nature of problem."

A manager at a leading ETF provider, speaking off the record, said that his firm has analyzed spreads since Knight's troubles began two days ago and confirmed that there has not been significant widening. "On average, we have not seen a significant widening in its ETF spreads. There are lots of market makers in the space," he said.

Several sources confirmed that Knight is still providing ETF quotes. William Rhind, managing director at ETF Securities, a firm that specialized in commodity-based ETFs, said that Knight's troubles have impacted neither his firm's spreads nor liquidity.

ETF executives say that there are enough market makers to pick up the slack left by Knight.

Holderith estimated that Knight conducts 25 percent of all trades in the ETF space. And the source at a leading ETF provider estimated that there are more than 20 ETF market makers at the NYSE. An executive at the New York Stock Exchange, which partners with market makers, declined to comment.

"If Knight is disrupted, there are others that can step in," he said. "There has been some movement [in the spreads], but it's hard to delineate what can be attributed to Knight specifically." 

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