BlackRock and Euroclear Bank announce ground-breaking plans to grow the European ETF market
New centralised post-trade arrangements will revolutionise settlement of ETFs in Europe
4 June 2013, Brussels and London - BlackRock and Euroclear Bank today announce plans to reform Exchange Traded Fund (ETF) 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 (ICSDs) - 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 central securities depository (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, commented: “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, Global Head of iShares, commented: “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 $1trillion 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 launched in the coming months, additional ETFs will be issued using the new international security structure.
Note to Editors
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ETF processing background
At present, cross-exchange listed ETFs in Europe, including iShares, 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 complex post-trade processes and risks. 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. Realigning ETFs across multiple European markets throughout the trading day is expensive, time-consuming and operationally complex. In addition, it increases the potential for settlement fails, fines, counterparty compensation claims and ETF buy-ins to avoid settlement fails. These are also reasons why ETFs in Europe trade with such wide spreads, i.e. to compensate brokers for the risk and costs of moving ETFs across borders.
BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2013, BlackRock’s AUM was $3.936 trillion. BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of March 31, 2013, the firm has approximately 10,600 employees in 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com.
iShares is the global product leader in exchange traded funds with over 600 funds globally across equities, fixed income and commodities, which trade on 20 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals.
BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0)20 7743 3000, has issued this document for access by Professional Clients only and no other person should rely upon the information contained within it. This document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any BlackRock fund.
Euroclear is the world’s largest provider of domestic and cross-border settlement and related services for bond, equity, derivatives and fund transactions. The Euroclear group comprises the international central securities depository Euroclear Bank, based in Brussels, as well as the national central securities depositories Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & Ireland. In 2012, the Euroclear group settled more than EUR 542 trillion in securities transactions, representing 159 million domestic and cross-border transactions, and held over EUR 23 trillion in assets for clients. Euroclear Bank is rated AA+ by Fitch Ratings and AA by Standard & Poor’s.
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