In the previous post on this site we already briefly discussed the possibility of merging the ETF order books of Deutsche Borse and LSE. This would create without doubt the biggest ETF market in Europe. Their market share would be 55.9% in compared to 21.8% for Euronext.
So, what other consequences can we expect for ETFs in Europe should we see the creation of a single order book? In terms of clearing, it would be logical to select one CCP. This will probably be EUREX. The consequence would then be that all trades will probably settle in Clearstream. The vertical silo that EUREX and Clearstream represent is a solid as a rock. No need to consider anything else.
For issuers entering the market, the go-to exchange for Europe will not be very difficult to select. With this kind of market share you actually have no choice. For existing issuers this could also simplify their operations. With 1463 ETF/ETPs/ETNs listed on Deutsche and 938 ETFs/ETCs/ETNs listed on the LSE (see data available on exchange websites) there are certainly a lot of cross-listings. Getting rid of these reduces fragmentation, settlement costs, risks (buy-ins) and overall operational costs.
For Euroclear and Clearstream it remains to be seen how a merger of ETF order books impacts them. For the local CSDs a lot depends of whether the choice is to clear with EUREX or not. For the ICSDs it remains to be seen if the international issuance structure for ETFs still makes sense. (for those interested I would suggest researching the impact of T2S).
Now, what's the missing puzzle piece? Borsa Italiana! They represent 10.8% of the European market and have their own clearing and settlement structure but are part of the LSE-group. Integrating Borsa in the picture above would be the cherry on the pie.
Finally, ETF market makers need to hedge. Both EUREX and IDEM are part of the merger and both exchanges have list some of the benchmark futures used by market makers.
So, a lot of opportunities to work on an integrated ETF-market, from trading to settlement. Will this happen? I don't know but I certainly hope so.
(Data source: Deutsche Bank, Jan 2016)