How do I Choose the Right Stock Exchange on Which to Buy ETFs

What factors should be considered when determining which stock exchange to buy a specific ETF on, when the identical ETF is listed on several exchanges?

I know that some brokers charge additional fees when you buy ETF shares in EUR or USD instead of CHF, and that deductions are higher when you buy at foreign stock exchanges.

What other factors may determine the ideal stock exchange for a purchase of shares in an ETF?

Thank you

Hi there,

There are many factors which you should consider when determining the right securities exchange for an ETF investment. These factors include:

1. Exchange fees: Some brokers account for fees charged by securities exchanges in their brokerage fees. Other brokers pass on exchange fee to customers in addition to brokerage fees. With the exception of some specialized securities exchanges, exchange fees are relatively low. You can find more information about securities exchange fees here.

2. Brokerage fees and custodial fees: Use the broker which charges the lowest brokerage and custodial fees. The same broker may apply different fees to different kinds of transactions and securities, so knowing what type of securities and transactions you expect to make is important in determining the right broker for your needs. Some Swiss brokers have special low fees for ETF shares transacted through Swiss securities exchanges, while charging higher fees for ETF transactions on foreign exchanges. Some brokers charge higher brokerage fees or custodial fees for securities (like ETF shares and stocks) which are traded on foreign exchanges. Brokerage fees may also vary depending on which foreign securities exchange is used in a transaction. The moneyland.ch online broker comparison provides a good overview of the costs of trading on Swiss and foreign exchanges.

3. Spreads: Each securities exchange may apply its own spread (the difference between the bid price and the ask price) to shares in a specific ETF. The optimal exchange is the one which shows the highest liquidity and narrowest spreads for a given ETF.

4. Currency exchange costs: When you buy shares in ETFs denominated by foreign currencies, you bear the risk of rate fluctuations should the denominating currency lose value against the Swiss franc. But commissions charged by brokers for currency exchanges in the way of currency exchange spreads (when you use CHF to purchase USD-denominated ETFs, for example) represent another significant cost. Every time you buy or sell shares, the currency is exchanged and you lose money on spreads. You can avoid this extra cost by either purchasing shares in CHF-denominated ETFs, or opening a USD- or EUR-denominated brokerage account if you plan to invest in ETFs denominated by the U.S. dollar or the euro.

5. Anticipatory tax: Swiss anticipatory tax is deducted directly from dividends paid out by ETFs which are domiciled in Switzerland (you get refunds after your tax returns are processed), but it is not deducted from foreign ETFs. By the same token, foreign ETFs which invest in Swiss securities pay anticipatory tax on interest or dividends earned, but cannot claim tax refunds. If you plan to invest in ETFs which, in turn, invest in Swiss securities, ETFs domiciled in Switzerland (and ideally listed on a Swiss securities exchange) are preferable.

Best regards from Moneyguru

More on this topic:
Swiss securities broker comparison
Buying ETFs in Switzerland: Cutting the Costs

Hello,

One follow-up on this if I may.

When the listing is in CHF on SIX, I prefer to use that, since my bank (Postfinance) has a 2.5% spread on currency exchange, leading to large costs if I trade in other currencies.

Now, SIX publishes historical spreads for individual ETFs. I used that and when I bought the ETFs I did benefit from a spread in the range suggested by the historical figures. What I seem to understand is that even if there is almost zero volume (sometimes actually zero for several days), some money maker assigned to the ETF at that exchange is ready to buy and sell with a reasonable spread, typically between 0.1% and 0.5% at the very worst.

My question is, can I count on such spread to be available in future? Is there a risk that, when I finally want to sell my shares in 4 years, the market maker has gone fishing and I need to wait for someone to show up who is willing to buy my shares, and hope that they offer a good price? 

I'd be interested if someone has any light on this. Thanks!

Hi jaques,

Like other exchange-traded securities, exchange traded funds (ETFs) have third-party market makers which buy shares being sold by investors. This sets ETFs apart from open-end funds which have to buy back their own shares.

As a general rule, in order for a fund to trade its shares on an exchange, it must have a market maker for its stock. If an ETF no longer meets exchange criteria, it will be unlisted. So there is no danger of your not being able to sell your ETF shares unless the ETF is delisted.

Best regards from Moneyguru