BlackRock and Euroclear Bank plans to reform exchange-traded fund trade processing and settlement across Europe by issuing the first iShares ETF with an international security structure.
Unlike other cross-exchange listed ETFs in Europe, which currently settle in national central securities depositories (CSDs), the new iShares ETF will be issued and settle for the first time in an international CSD – Euroclear Bank.
At present, all cross-exchange listed ETFs in Europe, including iShares ETFs, are issued and traded on one or more national stock exchanges and settle in the national CSD of the exchange where the trade is executed. This often causes inefficiencies when ETFs are traded across borders. By using a single European settlement location, it is expected the new international ETF structure will improve trading liquidity, ease cross-border ETF processing and significantly lower transaction costs for investors.
In the US, a single settlement location for ETFs has been in place for years, providing efficiency at all levels of trading, clearing and settlement. By simplifying the issuance structure and post-trade environment in the European ETF market, it will make it easier for liquidity providers to service clients and ultimately lower the cost of owning ETFs through reduced transaction costs.
Tim Howell, chief executive officer of Euroclear, says: “ETF trade processing across borders in Europe has long suffered from inefficient, complex and labour-intensive post-trade processes. BlackRock and Euroclear Bank have listened to the industry’s calls for an improved European solution and worked closely together to provide one. We believe the new international ETF structure that we and BlackRock will launch later this year will transform ETF trading and settlement in Europe. The beauty of our service offering is that it centralises settlement for ETF trades conducted on multiple trading venues. This structural shift, that clearly recognises ETFs as internationally traded securities, will further broaden investor appeal and provide the optimal post-trade arrangements. This will enable ETFs to continue their rapid rate of growth in Europe.”
Mark Wiedman (pictured), global head of iShares, says: “This pioneering partnership seeks to facilitate growth in the European ETF market by simplifying the issuance structure and post-trade environment of European ETFs. In order for the European ETF market to reach USD1trn in the next three to five years, the entire market ecosystem must become more efficient for investors. Access must be widened to encompass new investors and operating simplicity must be delivered in the form of lower transaction costs. We are proud to be a part of this development by making iShares ETFs ‘Euroclearable’ and hope that the result will be valuable for our clients.”
Upon successful completion of the pilot programme, which will launch in the coming months, additional ETFs will be issued using the new international security structure.