BlackRock, Euroclear and Clearstream have partnered to migrate 20 iShares exchange-traded funds to an international issuance and settlement structure. BlackRock, the parent of iShares, issued the first ETF with an international security structure in 2013, and has launched all new funds since March 2015 on this platform.
BlackRock, Euroclear and Clearstream have partnered to centralise post-trade arrangements on 20 iShares ETFs to increase liquidity, efficiency and reduce costs.
These 20 ETFs, with $2.9 billion in assets under management, are the first in the pre-existing range to transition to the new model.
Under this structure, the issuance and settlement of the ETFs are carried out by an international central securities depository (ICSD), such as Euroclear and Clearstream. Issuing and settling in a single pan-European location simplifies the post-trade process of ETFs, enabling market makers to offer more competitive trading spreads to investors, and also boost overall liquidity.
The fragmented nature of European financial markets means that many of the ETFs listed across multiple exchanges in Europe must settle in the national central securities depository (CSD) of the trading venue where the trade is executed. A single European settlement location facilitates cross-border ETF trading.
Stephan Pouyat, Global Head of Capital Markets at Euroclear, added: “What we are doing is effectively simplifying the European issuance and settlement process for this much sought-after investment product. The huge growth in European ETFs shows no sign of abating, and it is critical that the infrastructure providers like Euroclear have the right platforms and processes in place to manage the increasing volumes. Our model supports ETF issuer distribution in an efficient manner in Europe and beyond. Local CSDs can also provide post-trade services for internationally-structured ETFs via their links with the ICSD, achieving the best of both worlds.”
Bernard Tancré, Head of Business Solutions, Investment Fund Services at Clearstream, said: A significant advantage of this ICSD issuance model is that it utilises the well proven, and efficient settlement infrastructure for Eurobonds that market participants from around the world have been accustomed for more than 40 years. But regardless of whether a product issuer uses local CSDs or the centralised ICSD, seamless connectivity is crucial to the user experience, and we are proud to provide this system alongside our domestic issuance model.”
Leland Clemons, Global Head of iShares Capital Markets at BlackRock, commented: “As the global demand for European-domiciled ETFs continues to grow at pace, the ecosystem supporting the industry has never been more important. Our partnership with Euroclear and Clearstream to create a multi-national central settlement and clearing venue for European securities is testament to our commitment to making ETF trading more efficient. We hope to build an industry consensus around this simpler model. It is exciting to see more and more of our funds transition onto this system, which we are confident is valuable for our clients and for the industry as a whole.”
ETF processing background
At present, cross-exchange listed ETFs in Europe are issued and traded on one or more national stock exchanges and ultimately settle in the national central securities depository (CSD) of the exchange where the trade is executed.
However, when ETFs are traded across borders, i.e. a firm buys an ETF listed in one market and then sells the same ETF in another market, the firm’s trading desk is confronted with a complex post-trade process. The firm has to ensure that it moves the ETF from the national CSD where it has been bought to the national CSD where it is being sold. Moving ETFs from one CSD to another in order to deliver the ETFs to the buyer in another market often requires the firm to have accounts with multiple CSDs, to align the firm’s ETF positions among different CSDs and to follow different post-trade market practices in different markets.
Issuing and settling in a single pan-European location simplifies the post-trade process of these ETFs, helping to reduce trading costs, enable financial intermediaries and market makers to offer more competitive trading spreads to investors, and also boost overall liquidity.
The 20 existing ETFs that are now in the new international structure are:
iShares $ Short Duration Corporate Bond UCITS ETF
iShares MSCI EMU Mid Cap UCITS ETF
iShares MSCI EMU Large Cap UCITS ETF
iShares $ Short Duration High Yield Corporate Bond UCITS ETF
iShares £ Ultrashort Bond UCITS ETF
iShares $ Ultrashort Bond UCITS ETF
iShares Euro Ultrashort Bond UCITS ETF
iShares iBonds Sep 2018 USD Corporate UCITS ETF
iShares MSCI World Size Factor UCITS ETF
iShares MSCI Europe Momentum Factor UCITS ETF
iShares $ Treasury Bond 20+yr UCITS ETF
iShares MSCI World Momentum Factor UCITS ETF
iShares MSCI World Quality Factor UCITS ETF
iShares MSCI World Value Factor UCITS ETF
iShares MSCI Europe Value Factor UCITS ETF
iShares US Equity Buyback Achievers UCITS ETF
iShares MSCI Europe Size Factor UCITS ETF
iShares MSCI Europe Quality Factor UCITS ETF
iShares MSCI France UCITS ETF
iShares Euro Government Bond 20yr Target Duration UCITS ETF