A new futures exchange  backed by some of the biggest banks and broker-dealer groups in the world is apparently ready to begin operations in June. 

The Electronic Liquidity Exchange is aiming to break the "near-monopoly" grip the Chicago Mercantile Exchange  has on futures markets in the U.S., according to the Financial Times. 

The New York City-based exchange was established by a dozen financial firms: Bank of America, Barclays Capital, BGC Partners, Citadel, Citigroup, Credit Suisse, Deutsche Bank Securities, GETCO, JPMorgan, Merrill Lynch, PEAK6 and The Royal Bank of Scotland.

In October 2008, ELE named  Neal Wolkoff as its chief executive. He was a former CEO of the American Stock Exchange. Before that he served as chief operating officer of the New York Mercantile Exchange.

At that time, Wolkoff said: "Initially, ELX will focus on the significant opportunity to bring lower transaction costs, successful innovation, and greater speed and efficiency to the global market in U.S. Treasury futures contracts."

The Financial Times notes this is a particularly challenging environment to launch a new exchange. Although through mergers and acquisitions the CME  has captured nearly all of the market for financial and commodity futures, trading volume in those areas have fallen dramatically since the credit crisis started more than 18 months ago. 

The ELX didn't immediately return calls for clarification on its launch schedule early Thursday. The new group does have a Web site with more information. You can find it here.

Earlier this month, NYSE Euronext completed its acquisition of the American Stock Exchange. With the addition of AMEX's 416 ETF listings and 13 ETNs, the exchange-traded product listings at NYSE Euronext now number 680, excluding overseas ETFs, and a total of $595 billion in exchange-traded product assets.

IU.com's Eric Rosenbaum recently spoke with NYSE Euronext Senior Vice President Lisa Dallmer about the specific benefits of the completed acquisition for the ETF industry, and the current outlook for ETFs given the tough markets. 

IndexUniverse (IU): With the Amex deal completed, what are the major benefits to the NYSE as a competitor for ETF listings and ETF servicing business, beyond the bragging rights that are always a part of the battle among exchanges for market share?

Lisa Dallmer (Dallmer): At the broadest level, it's the bundling of the Amex historical strength in ETF listings, and our stronger technology platform. That allows us to create a best-of-breed approach for exchange-traded products. We've made our own strides in the listings business over the past few years, and already listed the biggest names in the ETF business-iShares, Vanguard Group, PowerShares, to name a few. ETFs will now have the largest listings platform aligned with a much better trading platform. This is not only important for the ETFs, either, but for the traders that make markets for ETFs. Firms in order routing and specialist firms, will benefit by the removal of a now redundant trading platform. That AMEX platform has routing costs associated with it, and going forward, those costs will be eliminated. To be frank, the AMEX market share in transactions and order flow has been low, but firms still needed to maintain connections to that platform, and that had a cost.

IU: When will the elimination of the AMEX platform and the movement of all ETFs to the NYSE Arca platform be completed?

Dallmer: As of Dec. 1, we will no longer support the AMEX trading technology for equities and ETFs. On the last day of November, ETFs will all move to NYSE Arca, and on Dec. 1, equities will follow to NYSE Alternext supported by NYSE technology. ETF issuer support has been strong for the migration to NYSE Arca, even before the deal was completed. The Vanguard Group, for example, went ahead with a third quarter migration of ETF listings to NYSE Arca, 10 days prior to the closing of the deal (see story here).

IU: Can you provide a specific example of how the NYSE's trading platform advantage directly benefits ETFs?

Dallmer: There are some very good statistics, at least initially, in support of the idea that our technology has an immediate, and positive, influence on ETF trading patterns, versus what ETFs experienced when listed on the AMEX. As an ETF issuer, you want to see trading activity take place on the primary exchange where you list. That supports the regulated market aspect of listing with an exchange, among other exchange service functions. Amex may have had the majority of ETF listings, but that did not translate into a dominating position in ETF trading. Amex had struggled with technology and that led to a pattern of competitors chipping away at the trading volume. To see if that might change for ETF issuers with the move to NYSE Arca, we looked at some data since Vanguard moved its ETFs. The Amex numbers for Vanguard ETFs, in particular, were much lower at the open and close.

In the month prior to the transfer, NASDAQ had 57.9% of the open to Amex's 42.1%. Since Sept. 19, and through Oct. 17, Arca has executed 97.4% of the shares in the opening cross in those issues. NASDAQ's total volume per day is down from 120,000 to 11,000 in those stocks. Amex was executing 88,000 per day at the open, while Arca is currently at 419,000 at the open (although the gross shares executed may be due to recent high volumes, the share is still astounding). At the close, Amex had still been at about 91% share in these issues. Arca is at 99.8%. However, close volume in these issues totals (across all the ETFs) about 29,000 shares per day (Amex had been 9,700). The lead market maker program that we created in our market structure, and our technology pushed those trading numbers up.

IU: The AMEX had some interesting initiatives in the area of ETF servicing. One, in particular, the so-called "black box" or "scrambler" technology for non-transparent portfolio disclosure of actively managed ETFs, has been an important part of the ongoing efforts to bring actively managed ETFs to market. Where does this initiative stand today, and what are any other initiatives that came out of the Amex's history in the ETF servicing business, that the NYSE will want to focus on as a combined ETF servicer?

Dallmer: With respect to the "black box project" as you refer to it, we are still working on the technology and with ETF issuers and regulators. There is a proposal in front of the Securities and Exchange Commission now detailing how the service would work to permit listings for a non-transparent actively managed ETF. NYSE Arca has developed strong expertise in the regulatory rule development process behind bringing new products to market. We brought the first commodity trust, SPDR Gold (GLD), and the first ETN to market, and we were early backers of index-linked certificates. We've also worked with ETF issuers and the SEC on permitting ETFs of ETFs. I'd also note that one type of product support we can now incrementally offer to AMEX relationships is listings on a global basis. NYSE Euronext is a global marketplace and for ETF clients like iShares, Invesco Powershares, and State Street Global Advisors, there are cross-listing agendas we can fulfill. We already cross-list one ETF into Europe, The Diamonds, and are working on fine- tuning that process so that under appropriate regulatory guidance, there is an easier path for further cross-listing by ETF issuers [Powershares recently listed two versions of ETFs offered in the U.S. in Europe, one on Deutsche Borse's Xetra and one on the London Stock Exchange].

IU: How will new ETF products get to market with seed capital so scarce, and with markets so beaten up?

Dallmer: During a period in which markets are down 4% or more a day, and asset pricing levels down by 20% to 40%, your vetting process for new products changes, with "fourth or fifth fund into a category" typically thrown out. The ETF market has been historically long-only, but already we are seeing the movement to products non-correlated to equities-such as fixed-income, commodities, and currency. Even before the market sell-off there were strong inflows of cash to those ETF categories. Ultimately, I don't believe ETF success will be about the availability of seed capital or market conditions. It's about gathering assets. Developing a distribution channel for a fund before it launches has been a strong theme for successful ETF launches in 2008.

IU: How can ETFs with a low level of assets ride out the current market downturn?

Dallmer: To the extent that a fund provider has certain fixed costs, it becomes increasingly difficult to support small asset bases in a down market. There have been some liquidations already, in cases where ETF groups were not finding it cost effective to keep portfolios trading. But the market structure that provides efficiency of trading is the same regardless of asset size, the market rules the same for a $5 billion ETF and a $10 million one. Also, an important difference between ETFs and traditional open-end funds is the lower fixed cost structure for ETFs. There are no transfer agency costs and no shareholder recordkeeping costs. From that perspective, an ETF provider with a low level of assets has less hurdles than a small open-end mutual fund.

No doubt, a very large ETF provider with existing economies of scale to support its fixed costs will more easily be able to add new portfolios, especially in cases where the strategies are more niche and where $100 to $200 million might be a very successful launch. It's no different than any other business: one revenue stream can't support multiple pieces. And yet, keep in mind that we've had ETF providers like WisdomTree Investments and ProShares grow extensively over a relatively short period of time.

IU: Do you expect that the current market environment will slow the growth of ETFs?

Dallmer: The mass exodus has been from open-end mutual funds. ETFs have not seen those same outflows, and their design has enabled investors to buy into, or exit exposures, intra-day. That has been a valuable feature in this market. When we come to the end of the year, I think comparison of index mutual funds and index ETFs that track the same index will show wide divergence, based on tax-efficiency, in the performance of ETFs versus open-end funds. Heavy turnover creates a situation in which investors using ETFs can really outperform similar open-end fund investors. And remember, all those investors leaving open-end funds in droves, they will eventually go back into the markets to reinvest. Maybe it was 7 to ten years ago that they first invested, and there was not even an ETF available to them. Now those investors are taking their capital gains hits and when they head back into the markets, it may be into ETFs and not back into open-end funds. So that's a big opportunity for ETF companies.

The S&P 500 is set to add another exchange to its blue chip index. After the close of trading on Tuesday, the Nasdaq OMX Group Inc. will replace department store chain Dillard's Inc., which has occupied the blue chip benchmark's last spot.

The shift follows the addition of Comstock Resources Inc., an oil and natural gas producer, to the S&P MidCap 400 index. It replaced Entercom Communications Corp., a radio broadcaster that was listed as the benchmark's 400^th largest company based on market-cap size when the move was made last week.

Also, the S&P SmallCap 600 index has made two changes within the past week. One of those involved replacing wireless tech provider EMS Technologies with Radio One Inc.  At the same time, Integral Systems Inc. was added and Fleetwood Enterprises, which makes recreational vehicles, fell out of the benchmark.

This has been a relatively active few months for the S&P 500. Since June alone, some 23 companies have been deleted, starting with the now defunct Bear Stearns on June 2. Most have been financials hit hard by the global credit crisis, including Lehman Brothers (deleted on Sept. 16) and Washington Mutual on Sept. 29.

Among recent additions is Invesco, the parent of exchange-traded funds giant PowerShares. Another player in the ETF marketplace, Bank of New York Mellon, joined the S&P 500 in May.

The addition of the Nasdaq is the first new exchange in the index since the Chicago Mercantile Exchange became part of the S&P 600 last August. Other exchanges in the S&P 500 are the NYSE and the Intercontinental Exchange. 

The Nasdaq certainly has been on an aggressive expansion path, particularly in ETFs. In the wake of the merger by what has been the industry's largest exchange, the American Stock Exchange, with the New York Stock Exchange, the Nasdaq has had a flurry of new offerings with its own ETF platform.

The Nasdaq has also been remaking itself from a domestic stock-focused exchange into a global provider. According to the company, its net revenues have shot up more than 200% in the past three years. Since going public three years ago, the Nasdaq's market cap has soared from around $700 million to top $6 billion.

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} Separately on Tuesday, Standard & Poor's lowered its expectations for 2008 dividend payment levels for the S&P 500 from $28.85to $28.05.

The lowered estimate still represents a 1.2% increase in S&P 500 dividend payments from the $27.73 posted in 2007,and translates into a $244.7 billion aggregate payment for the S&P 500 companies for 2008.

"The 1.2% expected increase in S&P 500 dividend payments for 2008 will be the lowest growth rate since 2001 when payments were down 3.3%," said Howard Silverblatt, S&P's senior index analyst, in a statement.

"The growth ratef or dividends was negatively impacted by financials. Year-to-date, there have been 35 dividend cuts by financial issues with an aggregate decrease of $31 billion compared to just 12 cuts over the past five years reducing dividends by $3.1 billion."

The S&P 500 is set to add another exchange to its blue chip index. After the close of trading on Tuesday, the NASDAQ OMX Group Inc. will replace department store chain Dillard's Inc., which has occupied the blue chip benchmark's last spot.

The shift follows the addition of Comstock Resources Inc., an oil and natural gas producer, to the S&P MidCap 400 index. It replaced Entercom Communications Corp., a radio broadcaster that was listed as the benchmark's 400^th largest company based on market-cap size when the move was made last week.

Also, the S&P SmallCap 600 index has made two changes within the past week. One of those involved replacing wireless tech provider EMS Technologies with Radio One Inc.  At the same time, Integral Systems Inc. was added and Fleetwood Enterprises, which makes recreational vehicles, fell out of the benchmark.

This has been a relatively active few months for the S&P 500. Since June alone, some 23 companies have been deleted, starting with the now defunct Bear Stearns on June 2. Most have been financials hit hard by the global credit crisis, including Lehman Brothers (deleted on Sept. 16) and Washington Mutual on Sept. 29.

Among recent additions is Invesco, the parent of exchange-traded funds giant PowerShares. Another player in the ETF marketplace, Bank of New York Mellon, joined the S&P 500 in May.

The addition of the NASDAQ is the first new exchange in the index since the Chicago Mercantile Exchange became part of the S&P 600 last August. Other exchanges in the S&P 500 are the NYSE and the Intercontinental Exchange. 

The NASDAQ certainly has been on an aggressive expansion path, particularly in ETFs. In the wake of the merger by what has been the industry's largest exchange, the American Stock Exchange, with the New York Stock Exchange, the NASDAQ has had a flurry of new offerings with its own ETF platform.

The NASDAQ has also been remaking itself from a domestic stock-focused exchange into a global provider. According to the company, its net revenues have shot up more than 200% in the past three years. Since going public three years ago, the NASDAQ's market cap has soared from around $700 million to top $6 billion.

Separately on Tuesday, Standard & Poor's lowered its expectations for 2008 dividend payment levels for the S&P 500 from $28.85 to $28.05.

The lowered estimate still represents a 1.2% increase in S&P 500 dividend payments from the $27.73 posted in 2007, and translates into a $244.7 billion aggregate payment for the S&P 500 companies for 2008.

"The 1.2% expected increase in S&P 500 dividend payments for 2008 will be the lowest growth rate since 2001 when payments were down 3.3%," said Howard Silverblatt, S&P's senior index analyst, in a statement.

"The growth rate or dividends was negatively impacted by financials. Year-to-date, there have been 35 dividend cuts by financial issues with an aggregate decrease of $31 billion compared to just 12 cuts over the past five years reducing dividends by $3.1 billion."

With the lifting of the Securities and Exchange Commission's ban on short-selling, ProShares short financials funds, ProShares Short Financials (AMEX: SEF) and Ultrashort Financials (AMEX: SKF), resumed normal creation activity. 

During the suspension of creations, average daily trading volume of SKF and SEF exceeded 19 million shares, according to ProShares.

There was no word from Rydex this morning as to whether its short financials fund, 2X Inverse S&P Select Sectors Financials (AMEX: RFN), would also be back to normal.

Separately, ProShares announced that it has moved all of its 64 ETFs to the NYSE Alternext platform (the new name for the Amex ETF platform), in response to the completed acquisition by NYSE of the ProFund ETF current trading home, the American Stock Exchange.

The ETFs' closing time will now be 15 minutes earlier, at 4 p.m., in line with the NYSE platform's normal closing time. The new closing time went into effect yesterday. The ETFs are all expected to move to NYSE Arca in the fourth quarter.

While the ban on short-selling has been the biggest problem for these short financials ETFs, more generally, the ETF industry has experienced its first major premium/discount, and bid/ask spread issues, as a result of the abnormal market conditions. 

Many funds have developed wide discounts to net asset value—though most are eaten away by arbitrage players within a few days. What's more, bid/ask spreads have widened, though, again, the general trend before the abnormal market conditions was for bid/ask spreads to be going down across the ETF industry.

Nevertheless, ProShares has felt compelled to add an educational piece to its Web site explaining how ETFs trade, how a premium or discount can develop, and the difference between closing price, intraday indicative value, and net asset value.

The piece also provides investors with tips on how to more efficiently trade ETFs.

The parade of exchange-traded products over to NYSE Arca is continuing this week, with First Trust Portfolios and iPath transferring exchange-traded portfolios to NYSE from the American Stock Exchange.

Since the NYSE announced its acquisition of the Amex, it has been as if July Fourth came early to the ETF world, with many providers moving portfolios to the NYSE Arca platform en masse.

Last week, NYSE completed its acquisition of Amex, and with the closing of the deal, cemented its position as the largest ETF platform: NYSE Arca now hosts 680 of the total 813 industry ETFs, and more than $320 billion in exchange-traded product assets (see story).

In the most recent ETF moves related to the NYSE-Amex deal, Barclays said it will transfer its iPath CBOE S&P 500 BuyWrite Index ETN to NYSE Arca as of October 31.

Barclays expects to move all Amex-listed ETNs and ETFs to NYSE Arca by the end of October.

The Vanguard Group, among other ETF providers, also recently moved a slate of ETFs over to NYSE Arca (see story).

In the case of First Trust, the ETF parade is slated for the first week of November, with 29 portfolios in all moving over to the NYSE Arca platform. The affected ETFs are:

First Trust Dow Jones Select MicroCap Index^SM Fund (FDM)

First Trust Morningstar^® Dividend Leaders^SM Index Fund (FDL)

First Trust IPOX-100 Index Fund (FPX)

First Trust Amex Biotechnology Index Fund (FBT)

First Trust Dow Jones Internet Index^SM Fund (FDN)

First Trust DB Strategic Value Index Fund (FDV)

First Trust Value Line^® Equity Allocation Index Fund (FVI)

First Trust Value Line^® Dividend Index Fund (FVD)

First Trust S&P REIT Index Fund (FRI)

First Trust Value Line^® 100 Exchange-Traded Fund (FVL)

First Trust DJ STOXX^® Select Dividend 30 Index Fund (FDD)

First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR)

First Trust Dow Jones Global Select Dividend Index Fund (FGD)

First Trust Consumer Discretionary AlphaDEX^® Fund (FXD)

First Trust Consumer Staples AlphaDEX^® Fund (FXG)

First Trust Energy AlphaDEX^® Fund (FXN)

First Trust Financials AlphaDEX^® Fund (FXO)

First Trust Health Care AlphaDEX^® Fund (FXH)

First Trust Industrials/Producer Durables AlphaDEX^® Fund (FXR)

First Trust Materials AlphaDEX^® Fund (FXZ)

First Trust Technology AlphaDEX^® Fund (FXL)

First Trust Utilities AlphaDEX^® Fund (FXU)

First Trust Large Cap Core AlphaDEX^® Fund (FEX)

First Trust Mid Cap Core AlphaDEX^® Fund (FNX)

First Trust Small Cap Core AlphaDEX^® Fund (FYX)

First Trust Large Cap Growth Opportunities AlphaDEX^® Fund (FTC)

First Trust Large Cap Value Opportunities AlphaDEX^® Fund (FTA)

First Trust Multi Cap Growth AlphaDEX^® Fund (FAD)

First Trust Multi Cap Value AlphaDEX^® Fund (FAB)

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While many Americans may be moving in with relatives as a result of the housing crisis, the 38 Vanguard exchange-traded funds are set to begin rooming, listing and trading together, due to the acquisition of the American Stock Exchange by NYSE Arca.

The consolidation of all Vanguard ETF trading on NYSE Arca will commence this Friday morning.

There are already four Vanguard ETFs—Vanguard Mega Cap 300 ETF, Vanguard Mega Cap 300 Growth ETF, Vanguard Mega Cap 300 Value ETF and Vanguard Total World Stock ETF—trading on the NYSE Arca.

There have been many recent "housekeeping" moves in the ETF market as a result of the acquisition of AMEX by NYSE Arca. In at least one respect, the move of the AMEX-listed ETFs to NYSE Arca represents an important historical footnote for the ETF business.

AMEX was the original exchange home to the ETF market in its early days, at a time when many investors did not even know what a SPDR was and well before ideas like actively managed ETFs and hedge fund replication ETFs were even ideas in the product pipeline.

AMEX had seen its market share of ETF trading slip away in recent years as the bigger exchanges came to see the potential of the ETF business. ETF trading now represents 31% of all U.S. equities trading. (See related story.)

The dwindling of its share of the growing ETF market was one of the issues AMEX confronted in the days leading up to its decision to be acquired.

Vanguard has $51 billion in ETF assets, and its ETF family grew 25% in the year ended August 2008. Most notably, its Total Stock Market Fund, aided by rising assets of its ETF share class, recently passed its S&P 500 Index Fund as Vanguard's largest offering (see IU.com story).