Our innovative solutions for the ETF market

08.04.2019

ETFs have gained popularity amongst investors as primarily they offer lower fees and more transparency. ETFs fulfil investor objectives in terms of liquidity, portfolio diversification as well as hedging. But there are still market inefficiencies and post-trade fragmentation issues to solve before ETFs can reach their full potential.

To provide deeper insights into the ETF market and its distribution models, Clearstream has issued a research paper analysing market initiatives to improve infrastructure and settlement flows, especially in the light of the markets internationalisation both inside and outside Europe, as well as discussing remaining market barriers.

The report also covers the innovative and flexible solutions Clearstream has brought to the market and how those satisfy the needs of all ETF issuers. These solutions reduce process inefficiencies benefitting the issuers, investors and the market in general.

Key points

ETF market flows

Latest statistics highlight a rapidly expanding market distribution, yet there is an evident pragmatism amongst ETF issuers to consolidate their cross-listing to a smaller number of concentrated trading venues. This rationalisation results from a desire for efficiency in the ETF issuance, trading and settlement lifecycle.

Given the expansion of the reach for different market models, Clearstream believes that issuers’ best option is to rely on a single ISIN issuance via the ICSD or ICSD+ models. This facilitates efficient issuance, trading and post-trade activity, reducing cost and post-trade fragmentation due to centralisation of the securities within the ICSD.

Customised solutions for ETF issuance

In the ETF market there are generally two issuance models – the ICSD and CSD infrastructure – governing the lifecycle of trading, clearing and settlement.

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

Clearstream’s ICSDplus issuance model for example is servicing ETFs issued directly within T2S as well as those outside T2S. This new 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.