Euroclear, operator of the worldâs premier settlement system for domestic and international securities transactions, and owners of CRESTCo, has finalised an agreement to acquire EMXCo, the UKâs leading provider of mutual-fund order routing and the de-facto standard for electronic order messaging of mutual funds.
Effective January 2007, the acquisition will lead to the development of an automated and standardised order-messaging and settlement solution for UK fund transactions. This will deliver significant reductions in manual overheads, including settlement and asset-servicing cost savings of up to 50%. Longer term, EMXCo will contribute to the Euroclear groupâs aim of providing the most efficient single platform for the order routing, settlement and asset servicing of fund transactions across multiple markets.
Combining the highly efficient fund order-routing capabilities of EMXCo with the real-time settlement capacity of CREST will result in the introduction of a centralised fund-process for the UK to deliver:
- straight-through processing for fund issuers and intermediaries through increased processing automation and standardisation of market practices;
- lower tariffs as a result of economies of scale and technological innovation;
- quicker cash payments;
- reduced operational risks; and
- greater appeal for retail and institutional investors to invest in funds.
Tim May, Chief Executive Officer of CRESTCo, who will become Chairman of EMXCo, said: âWe are taking a major step forward in transforming the operational infrastructure for the fund industry that will deliver real and meaningful benefits. Processing for UK mutual funds is plagued with inefficiencies, high costs and risks largely due to manual intervention. Together, Euroclear and EMXCo intend to eliminate the operational burdens impeding the UK fund marketâs ability to operate efficiently and cost effectively.â
Max Wright, Chief Executive of EMXCo, commented: âBecoming part of Euroclear represents a key milestone in the companyâs development. It will allow us to expand our service offering and geographic coverage to provide even more benefits to our existing and new clients. Additionally, the combined group is ideally placed to respond to the recent comments in the European Commissionâs White Paper on enhancing the single market framework for investment funds and develop a coherent strategy to phase in the necessary improvements to counter operational risks and fund-transaction processing delays.â
The major shareholders of EMXCo (Fidelity International, Hargreaves Lansdown, Invesco Perpetual, M&G, Skandia and Threadneedle) are fully supportive of the acquisition and the benefits that the combination of Euroclear and EMXCo will bring to the fund industry.
Simon Davies, Chief Executive Officer of Threadneedle Asset Management, commented: "EMXCo was formed because it was clear that the systems for dealing and settlement of investment funds were inefficient and expensive. EMXCo has been successful because it has been able to make great improvements to this process. This further step of integrating with Euroclear and CREST's securities systems - especially implementing settlement - will provide another step forward for all market participants - including our investors. We believe this deal will be positive for EMXCo and Euroclear, and will make investment funds easier to incorporate in the portfolios of discretionary asset managers.â
Charlotte Black, Director, Corporate Affairs of Brewin Dolphin, commented: âEuroclear's acquisition of EMXCo is really exciting news for our industry and investors in collective funds. Brewin Dolphin's costs of administering a unit trust holding for a private investor is presently around 15 times the cost of a similar investment in an equity - and I believe the retail industry generally counts the cost at 20 to 30 times. Brewin Dolphin holds GBP 2 billion in collective funds on behalf of its clients (out of the GBP 19 billion we manage in total) and I expect this development to increase over time our efficiency, reduce our costs and expand this part of our business dramatically over time.â
Upon completion of the transaction, Max Wright will become a member of the Euroclear Group Management Team. The existing EMXCo Management Team will continue to operate the business as a separate subsidiary of Euroclear SA/NV for the foreseeable future with transparent and unbundled tariffs.
The combined group (Euroclear and EMXCo) intends to pursue its shared business objectives with active market consultation. The introduction of a centralised fund-processing infrastructure in the UK is in accordance with the Investment Management Associationâs principles, as published in January 2006.