JP Morgan has been servicing ETFs since 1996 and is especially proud of the Global ETF capability developed in the last two years, explains Fearghal Woods, Managing Director in Dublin. “This breadth of funds and assets has permitted JP Morgan to build a scalable and flexible offering for our clients in the US, and continue to expand that offering to service clients globally.” JP Morgan currently service 230 ETFs with assets in excess of USD525 billion in the US market.
“We have leveraged what we built in the US specifically for the European market,” Woods (pictured) says, commenting that the European market is more fragmented, not as liquid as the US and operates across a number of fund and exchange domiciles.
“We have spent the last 24 months building out and expanding the platform and our capabilities,” Woods says. “We have now added our first European based client in January representing 15 funds and EUR3 billion.”
Woods explains that work continues in enhancing the ETF platform as the market changes. “From an ETF ecosystem perspective, we have been able to build a platform which connects primary and secondary market activity. All deal flow processing and onward settlement is automated.”
JP Morgan Ireland is now home to an authorised participant (AP) services desk with a single team looking after AP relationships across EMEA.
“There is lots of ETF expertise in Dublin,” Woods says. “We have leveraged on that with hires that include specific AP experiences with understanding what the AP demand is and what the issues are.”
Woods says that his aim is to make life easier for issuers and APs. “What we have developed is directed at the AP community but facilitates the Issuer products. The AP’s are aggregators of demand and we are trying to make it as easy as possible by providing integrated services that closely align with their operations to consume fund data in a timely and efficient manner.”
In developing the platform, JP Morgan obtained feedback from clients, APs, and other market participants, including conducting a study with KPMG on ETF market and selection criteria for service providers entitled Are you with the right ETF service provider?
“The theory was to understand clearly the market issues affecting both issuers and APs.”
Woods feels that JP Morgan’s arrival in the ETF business later than its competitors is an advantage as his team have a long background in the ETF industry. Woods’s team helped design and implement the operating model for both the first physical and synthetic ETF’s in Europe including a multi-broker swap model while at another provider.
Woods has seen lots of interest from active managers who want to enter the ETF market but find the transparency requirements problematic. Woods comments that the ETF transparency requirements were originally designed to enable market-makers to keep spreads tight but have different implications for the ETF issuers, potentially slowing the products coming to market.
“There is lots of interest in the ETF space where active helps differentiate manager strategies,” Woods says. “In three to five years we will see most growth in the active allocation strategies with potentially some delay in true active strategies as a result of disclosure requirements. It’s a potential significant opportunity for growth in the market.”