State Street Automates Fixed-Income ETFs

Terry Flanagan

State Street Global Advisors is automating the process of creating and redeeming baskets of fixed income exchange-traded funds using Bloomberg’s newly-launched Income ETF Basket Tool.

Unlike equity ETF products, fixed income ETFs are highly customized. The Bloomberg Fixed Income ETF Basket Tool helps the basketing and negotiating process by introducing efficiencies that have not existed for these products.

“Since their launch just over a decade ago, market participation in fixed income ETFs has grown substantially and they now comprise approximately 20% of all ETF assets under management,” Ben Macdonald, Bloomberg’s global head of product, told Markets Media. “Unlike equity ETFs, the process of creating and redeeming fixed income ETFs is very inefficient and fragmented.”

Bloomberg and SSGA recognized that developing a better way to automate the creation and redemption process was going help grow the amount of assets under management. “By working closely with SSGA, we were able to develop a tool that automates the process of creating and redeeming baskets of fixed income ETFs, improves communication between ETF providers with authorized participants and market makers, and bring the basketing process directly to the Bloomberg Terminal via the function BSKT,” said Macdonald.

Unlike equity ETF products, the unique nature of each bond issue means that fixed income ETFs are highly customized. For non-Bloomberg Terminal users the process of creating baskets of ETFs begins daily, around 8:30 a.m. Groups such as SSGA distribute a list of the best bonds via an FTP website. Investors then download these lists and create a custom basket of ETFs to be approved by SSGA, typically with email verification.

“Rapid growth in the fixed income ETF market has provided more liquidity and a cost-efficient alternative to undertaking credit risk,” said Timothy Coyne, global head of the ETF capital markets group at State Street Global Advisors, said in a release. “The Bloomberg Fixed Income ETF Basket Tool provides market participants an efficient and systematic way to access the primary market of ETFs.”

Noted Macdonald, “With the new functionality we’ve developed, ETF lists can be uploaded, created, and sent back for approval, all on the Bloomberg terminal and throughout the day.”

The Bloomberg Fixed Income ETF Basket Tool aggregates existing Bloomberg functionality — Trading Solutions Order Execution (TSOX), Portfolio Analytics and Risk (PORT) and Fixed Income Trading (FIT) solutions — to help SSGA authorized participants and market makers gain access to the liquidity necessary to create and redeem fixed income ETFs.

Featured image via sorapolujjin/ Dollar Photo Club

Related articles

  1. Richard Turner of Insight Investment sees more automation and more transparency around cost and outcomes.

  2. The suite enables GAM to seamlessly manage market risk exposure and liquidity and investment risk.

  3. Asset manager anticipates an SEC decision on converting its fund to a spot bitcoin ETF by early July.

  4. Fidelity continues to hire thousands to support cryptocurrency.

  5. Tradeweb Draws Buy Side in Europe

    Net sales registered net outflows of €3bn, compared to €42bn in March 2022.