by Stephan Pouyat, Global Head of Capital Markets and Funds Services, Euroclear

The dramatic jump in European ETF issuance last year is well documented. The total invested rose by fully 40%, a remarkable figure given historic rates of growth (see chart below).

There has been a fall in settlement fails, an improvement in liquidity and we have seen opportunities for reduced bid/offer spreads. This aligns with a number of market factors from the loss of faith in active products, the increase focus on cost by investors, the new international structure - devised by Euroclear in partnership with the leading ETF issuer, Blackrock – and the entry of more asset managers into the ETF market.

Ultimately, all these variables have helped to boost investor confidence in the product.

The growth has also been good for the exchanges across Europe. As I pointed out in a speech at the World Exchange Congress in Oman recently, the ETF is rapidly becoming a pump-primer for stock market liquidity – bringing all-round benefits for Europe’s financial centres.

2017 Phenomenal increase in Europe +40%

Large migration into international issuance

Freeing up an international instrument

Until 2016, ETFs were by nature international instruments, but they followed the domestic equities issuance route. As one knows, domestic equities are meant to be targeted to a local domestic market only.

So when the ETF started to have multi listings, very rapidly they suffered from a strong friction cost when listed in multi-jurisdictions.

Indeed the same ETF might be listed on many different exchanges; but the requirement to settle each local trade in the local settlement silo caused unnecessary friction as market-makers struggled to realign holdings from one centre to another.

While exchanges started to note the growing popularity of the asset class, and the number listing ETFs rose rapidly, trading was still constrained by wide spreads, low liquidity and repeated settlement fails.

After lengthy discussions with ETF providers over a number of years, Euroclear designed a new model that brought the efficiency of ICSD settlement to the asset class. Blackrock started moving its ETFs into the international structure in June 2016. Others followed. Today, around 40% of Europe’s ETF market by value is in the international structure.

By removing domestic settlement constraints, this has eliminated the friction that may have been holding the market back. But that is not all.

New role in securities financing

The difficulty in locating and mobilising European ETFs has historically been a factor in limiting their acceptance as collateral in agency securities lending programmes. But the shift to a centralised, international structure across Europe has changed all that.

Now Citibank has announced it is to accept ETFs as collateral in a move that will help institutional investors expand their pools of collateral to meet increasing margin requirements. The greater transparency provided by MiFID II demonstrated that ETFs are a liquid instrument; but so too is the improved access offered by Euroclear’s international structure.

Expansion of multi-listed instruments

Today, ETFs make up about 5% of the world’s funds industry. Given current rates of growth, that figure is set to rise. To remain competitive, exchanges need to ensure they get their share of this growth.

What is certain is that there is a huge expansion underway in secondary market activity in multi-listed instruments – not just ETFs but other asset classes such as money market funds and HQLA investment funds (high quality liquid asset funds as defined under Basel III).

Taken together, by 2022, we may see as much as a third of the global funds industry listed on stock exchanges.

Asset class expansion of multi-listed instruments

Growing opportunities for stock exchanges


  • € 0.75 trn ETFs


  • € 1.2 trn ETFs
  • € 1.7 trn HQLA Funds (Basel III)
  • € 3.0 trn of Active Indices and smart beta
  • € 1.4 trn of Money Market Funds

All above require stock exchange listing 

This presents an opportunity for both the funds industry and the world’s stock exchanges. For the former, a growing secondary market will help make the investment funds business more liquid. For the latter, it’s a chance to boost market liquidity and boost the local business environment.

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by Stephan Pouyat

Global Head of Capital Markets and Funds Services, Euroclear

As Global Head of Capital Markets and Funds Services at Euroclear, Stephan Pouyat cares passionately about aligning the financial sector with moves to accelerate development among the world's emerging economies.