Intercontinental Exchange is to launch a new open-architecture, centralised industry platform to facilitate creation and redemption orders for exchange-traded funds.
This new platform, expected to begin operations in 2019, subject to regulatory approval, will employ innovative functionality and establish standards to simplify the primary market trading process, which will bring more efficiency and transparency to the process. BlackRock will be one of ICE’s development partners and has executed a memorandum of understanding with ICE to support the new platform.
The US ETF market has seen tremendous growth. According to the Investment Company Institute, net assets grew six-fold over the last decade to USD3.4 trillion. Fixed income ETFs have been one of the fastest growing segments within ETFs, with compounded annual growth of over 30 per cent during the last ten years.
“In order to fulfil its next phase of growth, the ETF industry needs to standardise the process for creating and redeeming shares, particularly in fixed income. ICE has a well-established track record of bringing innovative technology to drive efficiencies and solve the market’s most complex challenges,” says Intercontinental Exchange President Ben Jackson. “With a diverse range of investors embracing ETFs, participants in the ecosystem will benefit from the transparency and scalability these standards will foster.”
With the new platform, ICE is developing industry standard protocols to simplify the current create and redeem process. Market participants will be able to place orders for creation and redemption baskets in a central venue, designed in an open platform to support participants from ETF sponsors to market makers, and other authorised participants. The platform will provide analytics, data and content, and instant messaging, as well as connections to trading venues and execution services.
“As ETFs have grown, it has become increasingly clear that there is a need for transparent and consistent creation and redemption protocols. As clients continue to adopt ETFs as both core holdings and ways to take tactical positions, they’ll benefit from the efficiencies these standards create,” says Samara Cohen, head of iShares Global Markets for BlackRock. “There is a growing industry consensus on this issue and ICE is taking an important step by creating a new open-architecture platform that establishes standards to simplify the trading process. We are pleased to be a development partner with ICE and other ETF ecosystem participants to build out primary trading standards.”
As part of this initiative, the platform will be connected to BondPoint, TMC Bonds and ICE Credit Trade, which provide fixed income execution protocols for asset classes including Municipals, Corporates, Treasuries, Agencies and Certificates of Deposit. In addition, ICE Data Services will provide analytics and reference data to the platform.
