BlackRock, owner of exchange traded fund provider iShares, is looking to launch an ETF with an international security structure in a bid to help establish a single market for products across Europe.
Currently, all cross-exchange listed ETFs in Europe including iShares ETFs are issued and traded on one or more national stock exchanges and are settled in the national central securities depository of the exchange where the trade is made. But this system, according to BlackRock, can lead to inefficiencies due to complex and labour-intensive post-trade processes.
The planned iShares ETF will be issued and settle for the first time in a international CSD, trade settlement operation Euroclear Bank.
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, Blackrock, the world’s largest fund manager hopes the new system will make it easier for liquidity providers to service clients and ultimately lower the cost of owning ETFs through reduced transaction costs.
Mark Wiedman, global head of iShares, says: “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 $1trn 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.”
Euroclear chief executive Tim Howell adds: “We believe the new international ETF structure that we and BlackRock will launch later this year will transform ETF trading and settlement in Europe.
“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.”
Informed Choice managing director Martin Bamford says: ”This move looks like a positive step for investors, as it should lower trading costs and make ETF investing even more efficient. The ETF market is still relatively young in Europe, so innovations like this create an opportunity for a much bigger market in the future.”