Euroclear Bank, the Brussels-based market infrastructure provider, has won Franklin Templeton and JP Morgan Asset Management (JPMAM) to its centralised ETF issuance and settlement platform.
The two US fund giants both launched their first ETFs in Europe in recent months and selected Euroclear’s international ETF structure for their funds.
The Euroclear platform is intended to bring US-style efficiencies to Europe’s fragmented ETF market by centralising issuance and settlement for products that trade simultaneously on different exchanges.
The main alternative for ETFs listed on multiple exchanges would be to settle in local central securities depositaries (CSDs) or through a rival model offered by Clearstream.
Mohamed M’Rabti, deputy head of FundsPlace and head of ETFs at Euroclear, said that JPMAM’s business was won after a competitive exercise.
Euroclear Bank is a Brussels-based international central securities depositary (ICSD) and launched its international issuance structure in 2013, gaining BlackRock as its first client.
According to M’Rabti, 35% of Europe’s roughly $700 billion (€590 billion) ETF market now uses international structures.
The issuers include State Street’s SPDR ETF line.
“When we started with BlackRock five years ago we said we wanted to emulate the US model and for them it made sense,” M’Rabti told Funds Europe. “Having one place of settlement for ETFs on different trading venues offers better efficiencies for settlement and for securities lending.”
Securities lending is tipped to become more common for ETFs as a source of revenue if, as some experts predict, passive fees for certain products fall to zero.
“In domestic issuance today, liquidity is fragmented across different CSDs and realignments between CSDs are complex, risky and costly.
“Separately, an agent lender that wants to lend does not have a clear view of where the depositary is. Now that liquidity can be centralised, they do have a good view of it,” said M’Rabti.
He said Euroclear has “more nice names” (meaning ETF issuers) in its pipeline of migrations to the international structure.
Moving to the platform will help Europe’s industry bring down its “friction” costs. “The industry is looking to bring down ETF spreads from 20 basis points to perhaps 10 basis points as a first stage,” M’Rabti said, noting that average spreads in the US were about 2 basis points.
BlackRock issued the first European ETF in Euroclear’s international structure in 2013 and subsequently migrated 20 more ETFs to Euroclear and Clearstream.
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