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BlackRock and Euroclear Bank collaboration aims to transform European ETF market

BlackRock and Euroclear Bank have announced ambitious plans to try 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, due for launch later this year, will be issued and settle for the first time in an International CSD (ICSDs), via Euroclear Bank.

According to the partners, 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 CSD of the exchange where the trade is executed. This can cause inefficiencies when ETFs are traded across borders. By using a single European settlement location, both partners expect 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. Simplifying the issuance structure and post-trade environment in the European ETF market aims to make it easier for liquidity providers to service clients and ultimately lower the cost of owning ETFs through reduced transaction costs. It should also attract volume to the partners, of course, but the move is likely to be replicated.

“ETF trade processing across borders in Europe has long suffered from inefficient, complex and labour-intensive post-trade processes,” said Tim Howell, chief executive officer (CEO) of Euroclear. “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.”

According to Mark Wiedman, global head of iShares, in order for the European ETF market to reach US$1 trillion in the next three to five years, the entire market ecosystem must become more efficient for investors. “This pioneering partnership seeks to facilitate growth in the European ETF market by simplifying the issuance structure and post-trade environment of European ETFs,” he concluded.