Assessing the Impact of ETF Liquidity Enhancements

Over 80% of Hong Kong-listed Exchange Traded Funds (ETFs) recorded bid-ask spread improvements, and over 70% of ETFs have spreads tighten by more than 10%, according to a whitepaper by HKEX.

The spread tightening was driven by two liquidity enhancing initiatives rolled out by HKEX in June 2020. The first was the introduction of a new set of rules requiring ETF market makers to provide continuous two-sided quotes at greater volumes and tighter spreads. The second was a new spread table for ETFs that reduced the tick size by at least 50%.

In order to assess the impact of these liquidity enhancing initiatives, HKEX has developed a whitepaper to examine the change in trading spreads of Hong Kong-listed ETFs immediately before and after the new measures took effect. We found that liquid ETFs, Hong Kong equity ETFs, and low-priced US dollar counters saw the most significant improvements. Learn how increasing ETF liquidity can help investors save trading costs.

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