Settlement guide for ICSD ETFs

03.07.2017

Major ETF issuers, such as BlackRock or State Street, have converted their locally issued exchange-traded funds (ETFs) into the ICSD model in Common Depository structure, that is, setup like other international securities such as Eurobonds.

This centralises the issuance process in one Common Depository and allows for central settlement in the International CSDs (ICSDs), Clearstream Banking Luxembourg S.A. (CBL) and Euroclear Bank SA/NV (EB), thereby eliminating the complexities of settling cross-border ETF transactions in Europe.

If local CSDs have made these ICSD ETFs eligible, they can be settled and held there, however, by default, settlement takes place in the ICSDs, meaning the local CSDs will hold the international ETFs in their account with the ICSD.

Settlement process description for trades executed on a stock exchange or over the counter

Stock exchange transactions

In the ICSD model, you are still able to trade ETFs on multiple stock exchanges and you have the possibility to settle them in an ICSD.

For trades executed in Deutsche Börse, the settlement takes place in Clearstream Banking Luxembourg S.A. (for German-based clients via their Clearstream Bank Frankfurt International ‘6 Series’ accounts).

For transactions traded on the Swiss Exchange, you can settle these transactions domestically between two local parties and send an onward cross-border transfer to book your securities in your CBL account.

For transactions traded on the Borsa Italiana, you can settle these transactions domestically between two local parties and send an onward cross-border transfer to book your securities in your CBL account.

For transactions traded on the London Stock Exchange Segment “Trading Services for ETFs”, LCH.Clearnet Ltd inputs matching instructions to settle them directly in its account at Euroclear Bank SA/NV. You can send an onward cross-border transfer to book your securities in your CBL account. 

For transactions traded on the Euronext, LCH.Clearnet SA inputs matching instructions to settle them directly in its account at Euroclear Bank SA/NV. You can send an onward cross-border transfer to book your securities in your CBL account. 

Over the counter transactions

For over the counter (OTC) transactions within ICSDs, settlement occurs directly between the accounts of Clearstream Banking Luxembourg (CBFi accounts respectively for German-based clients) or Euroclear Bank SA/NV, using the Bridge functionality if necessary.

For OTC transactions involving a CSD, settlement remains possible in the local markets via certain CSDs, for example, in Euroclear UK & Ireland who maintain their positions in their respective accounts in CBL or EB.  If you are dealing with domestic counterparts for your OTC-executed transactions, you can easily settle these transactions by instructing from your ICSD account to the Clearstream or Euroclear account of the CSD of your domestic counterpart as per the above illustration.

In the case of OTC transactions with a CSD holding an account with:

  • CBL: an internal instruction will suffice, for example, between your account at CBL and Monte Titoli’s account 85077 at CBL.
  • Euroclear: a Bridge instruction between CBL and EB will be required.

Important - check your settlement arrangements

International model ETFs held in the ICSDs are available for stock exchange and over the counter transactions. Please check with your counterparty (or custodian, or broker) which settlement arrangement should be applied to your trade (on a stock exchange or OTC) in particular the specific place of settlement.

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1. Trades settled in Monte Titoli must use their account in CBL (85077) from 3 October 2016 onwards. Before this date, the flow (directly from Monte Titoli to CBL or via EB) differs depending on the ISIN traded. Therefore, please contact your Relationship Manager in Monte Titoli.