Exclusive - Macquarie to enter U.S ETF market making business

By Jessica Toonkel

(Reuters) - Australia's Macquarie Group (MQG.AX) is entering the U.S exchange-traded fund market making business, officials told Reuters in an interview.

Market makers provide ETF issuers with an array of services, including providing seed capital and distribution. They usually step in to make sure that the ETFs are priced in accordance with demand and provide liquidity.

By becoming an ETF market maker in the United States, the financial services company will essentially be acting as a matchmaker between ETF issuers and their institutional clients, said Morgan Potter, managing director, global head of ETF trading.

Macquarie, which is a market maker for ETFs domiciled in Asia and Europe, is moving into the United States because it is the biggest ETF market globally, he said.

U.S. ETFs have $2.1 trillion in assets, compared with $500 billion for those in Europe and $125 billion for Asia, according to FactSet Research Systems (FDS.N).

Also, Macquarie's institutional clients, which include global long-only funds and hedge funds, are increasingly interested in U.S-domiciled ETFs, Potter said.

However, a handful of companies already dominate the U.S. market, including KCG (KCG.N), Cantor Fitzgerald and Jane Street. Macquarie hopes to differentiate itself by specializing in international and Asian ETFs domiciled in the U.S.

"Our pitch to clients is that it is not about being all things to all people," Potter said. "We profess to be experts with international and Asian ETFs."

As Macquarie builds its business, it will begin to cover U.S.-focused ETFs, he said.

Despite the competition, the move makes sense for Macquarie since many of its clients may be going elsewhere to buy ETFs, said Dave Nadig, director of ETF research at FactSet.

"More international institutions are looking to the U.S. ETF market as a way of getting exposure to their own markets," Nadig said, noting that the U.S. market is more liquid than any other and that there are more opportunities.

Also, there is an embedded currency bet for these investors in putting their money into U.S. ETFs, he said. By investing in U.S. dollar terms, these institutions are essentially betting that the greenback will strengthen.

(Reporting by Jessica Toonkel; Editing by Lisa Von Ahn)