Authorised participants as shock absorbers in fixed-income ETFs

This paper uses unique regulatory propriety data to analyse ETF secondary markets from a financial stability perspective. We find that ETF secondary markets are somewhat concentrated, but that a subset of Authorised Participants are active in both primary and secondary markets and act as a buffer between these. Only around a third of the net selling pressure in the secondary market manifests in redemptions in the primary market and this result holds across observed periods of mild market stress. However, the high yield fixed income segment may be more fragile during periods of stress.

Automated summary

This paper analyzes ETF secondary markets from a financial stability perspective using unique regulatory proprietary data. The results show that although ETF secondary markets are somewhat concentrated, a subset of Authorised Participants actively participate in both primary and secondary markets, acting as a buffer between them. Only about a third of the net selling pressure in the secondary market is reflected in redemptions in the primary market, and this relationship holds even during periods of mild market stress. However, the high yield fixed income segment may be more vulnerable during periods of stress.