Innovative solutions for the ETF market

Exchange Traded Funds (ETFs) have gained popularity amongst investors as this fund type highly fulfils investor objectives in terms of liquidity, low fees, transparency and portfolio diversification. Clearstream offers innovative and flexible solutions for the ETF market which increase process efficiencies  benefiting the issuers and investors alike.

Customised solutions for ETF issuance

In the ETF market there are generally two issuance models – the ICSD and CSD infrastructure or also known as domestic and international models – governing the lifecycle of trading, clearing and settlement.

CSD infrastructure

To list an ETF in multiple trading venues using the CSD model, an issuer has to issue the ETFs in a given CSD (Issuer CSD) and there must be a link with CSDs (Investor CSDs) in the country of the trading venues. The settlement process occurs in the CSD of the trading venue’s country. This means that when an investor buys an ETF on one trading venue and sells it on another, a realignment between the two CSDs involved in the transaction becomes necessary.

ICSD infrastructure

Conversely, in the ICSD infrastructure, the ETF is issued in one common place of issuance and the settlement will occur in the books of one or both ICSDs. For the generic ICSD model to deliver on its objective of settlement efficiency, ETF issuers are encouraged to engage with listing and clearing infrastructures to request that settlement be made possible directly into either of the two ICSDs.

ICSD issuance model

The ICSD issuance model is based on the utilisation of a common depository, which is a financial institution that has been jointly appointed by the ICSDs, Clearstream and Euroclear to hold and service international securities issued in Classical Global Note or book-entry form.

ICSDplus issuance model

The innovative ICSDplus model is based on our unique Fund Issuance Account (FIA) capability where Clearstream effectively connects directly to the register and enhances the efficiency of the overall process. As the FIA service is fully integrated with Clearstream’s ICSD settlement and custody service, it reduces processing risk through the synchronous exchange of cash and securities (DvP) between participants. The ICSDplus issuance model utilising the FIA is also perfectly positioned to cater for the issue of dematerialised securities under the Luxembourg Dematerialisation Law dated 6 April 2013.

Clearstream offers a range of ETF issuance solutions tailored to different needs and ultimately services for ETFs issued directly within T2S as well as those issued outside T2S.

Settlement for non T2S issued ETFs

For non T2S issued ETFs, settlement of the fund transactions in the market can directly reach counterparts (or their nominated custodians) who have accounts at:

  • Clearstream’s ICSD
  • CSDs linked to Clearstream’s ICSD
  • Euroclear’s ICSD

Settlement for T2S issued ETFs

For T2S issued ETFs, settlement of the fund transactions in the market can directly reach counterparts (or their nominated custodians) who have accounts at:

  • Clearstream’s ICSD
  • T2S In-CSDs;
  • T2S Out-CSDs having links to T2S In-CSDs.

The ICSDplus model can also go a step further with direct access to T2S taking advantage of all the cross-market settlement, low settlement costs and efficiency benefits this infrastructure brings.