Intercontinental Exchange’s ICE ETF Hub has launched new automated functionality for exchange traded fund (ETF) primary market participants to assemble custom basket proposals. The passage of the Securities and Exchange Commission’s Rule 6c-11 last September will now expand the use of custom baskets to all ETFs in-scope of the Rule. The result of this change offers the potential for offering greater tax efficiency, better liquidity and tighter bid-ask spreads for investors.
ICE ETF Hub is an industry-wide, open architecture, primary market technology solution for primary market ETF activity which enables a more standardised and simplified process for ETF creation and redemption. It currently supports both US-listed domestic equity and fixed income ETFs.
The new functionality allows market participants to screen, communicate and assemble custom baskets with issuers electronically, via Financial Information eXchange (or FIX)-enabled APIs and ICE ETF Hub’s front-end user interfaces. The platform gives users a straight through process, allowing them to seamlessly send approved baskets to authorised participants for order placement. This functionality is designed to help fixed income market participants transition away from the many manual, bespoke processes in use today, thereby increasing scale and reducing operational risk through standardisation and automation.
“Assembling and placing custom creation and redemption baskets – all in a systematic way – has been our vision for the platform since we started exploring ways to automate the ETF primary market,” says Peter Borstelmann, Head of ICE ETF Hub. “With this new functionality, we are introducing an innovative solution that enables market participants to deploy custom basket workflow in a more efficient and expeditious way.”
To allow customers to validate the new technology and experience its value first-hand, ICE ETF Hub is launching a pilot program allowing market makers to experience the custom basket negotiation functionality in a live production environment. Several market makers, including Jane Street, Old Mission and CTC, among others, have already enrolled in the program. Additional firms are expected to participate in the pilot program in the coming months.
In addition to these developments, ICE also recently launched connectivity between ICE ETF Hub and ICE FI Select. This connectivity allows traders to source bonds in the secondary cash market via ICE Bonds liquidity pools for custom basket negotiation. It also provides traders and market makers integrated access to security pricing and secondary cash bond execution.
Later this year, ICE plans to launch ICE Chat functionality to support the custom basket functionality, followed by support for US-listed international equity ETFs.