The contrast is dramatic, with dealing spreads running above 3% for the least-liquid fund. The appearance of five Market Access funds in the ten least-liquid ETFs suggests some structural problems in its dealing relationships, where there appears to be insufficient market maker support. It's not otherwise clear why bid-offer spreads should be so wide for some of the markets covered. The same appears even more true for the two UBS funds, which are tracking what are normally highly liquid areas of the market (the FTSE 100 and the MSCI USA indices). Could the root of this be counterparty credit concerns, which might be affecting the normally smooth arbitrage mechanism between market makers and ETF issuers?

The other funds in the list hint at liquidity problems in the underlying markets. The iShares corporate bond ETF is one that stands out, as this fund subsequently exhibited substantial discounts to NAV during the worst of the October panic (as IndexUniverse .com covered at the time), reflecting the almost total disappearance of secondary market liquidity in corporate bonds.

Changing Over The Year

The change in the XLM from Q1 and Q2 to Q3 should give us an interesting picture of the evolution of ETF liquidity during the course of the year.

At the headline level, the simple average XLM across all XETRA's ETFs increased from 44 basis points in Q1 to 45 b.p. in Q2 and 49 b.p. in Q3. This seems consistent with reports of worsening underlying liquidity in a number of asset markets, especially in Q3.

But this is not true for all funds, some of which showed an improvement in secondary market pricing.

Here are the ten ETFs with the greatest decline in XLM between Q1 and Q3 (i.e., those with the greatest improvement in bid-offer spreads).

ETFs With The Greatest Improvement In Liquidity

Here, by contrast, are the ten funds showing the greatest increase in XLM (the greatest deterioration in liquidity) over the same period.

ETFs With The Greatest Deterioration In Liquidity

1 | 2 | 3 |