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HSBC has launched iNAV algo, the first algorithm in the market to execute ETF trades based on their estimated real-time intraday net asset value (NAV) and investors’ trading preferences.

The algo has been primarily designed to provide clients with greater price transparency and optionality for ETF trading on exchanges, and to help them decide whether to trade on an exchange, over-the counter, or via a Request-for-Quote (RFQ) platform.

“HSBC’s iNAV algo is set to revolutionise ETF execution. It provides a unique capability to customers by executing ETF trades in real time while tracking their intraday net asset, or fair, value,” said Steven Palmer, Head of ETF Sales Trading at HSBC.

Mr Palmer added: “Currently, investors lack the visibility of real-time, intraday net asset values of ETF shares and, therefore, find it difficult to assess whether an ETF offers good value in the secondary market. iNAV can reduce market impact and therefore the total cost of execution by seeking out those secondary market opportunities for investors.”

iNAV is also able to provide investors with a more transparent way to undertake transaction cost analysis by comparing the executed price of an ETF against its real-time net asset value.

iNAV works by using live intraday net asset valuations to identify when an ETF is trading below its creation costs, so the investor can benefit by buying ETF shares at that moment in time. Similarly, the investor can benefit from selling ETF shares when they are trading above their redemption costs, using the algo.

HSBC’s iNAV seeks to maximise all available pools of liquidity on primary exchanges and alternative trading venues, including multilateral trading facilities.

Commenting on the introduction of iNAV to the market, Paul Battams, Head of EMEA Equity Trading at BlackRock, said: “ETF-specific algos are an important introduction for the growing European ETF industry, helping to broaden execution choices and bring greater flexibility to ETF execution processes to the benefit of investors.”

iNAV will initially be rolled out to a range of clients in European markets to execute ETF trades that have equity or precious metals underlyings, with plans to add fixed-income ETFs soon.

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