State Street Launches ETF Platform in Europe
State Street Global Exchange has launched its online FundConnect platform in Europe, which is designed to reduces transaction times by authorised participants for exchange-traded funds from hours to minutes.
Authorised participants have an agreement with the sponsor, who manages an ETF, to create or redeem ETF shares. They are usually a market maker, specialist or institutional investor, although they can also be a sponsor. The authorised participant borrows shares, usually from pension funds, and places them in a trust to create ETF units. which can then be traded on an exchange like a normal stock.
Peter McHugh, head of FundConnect in Europe, Middle East and Africa, told Markets Media that the process for authorised participants in Europe to create or redeem ETF units is still very manual with phone calls and faxes going back and forth.
McHugh said: “The time taken for authorised participants and sponsors to manually process transactions could be measured in hours and our platform reduced that to 10 minutes and eliminates errors.”
FundConnect has been used in the US market since 2008 but had to be changed for the European market as ETFs can be listed in more than one country in the region.
“One of the enhancements in Europe is that the settlement location can differ for each ETF and that is captured in our system,” added McHugh. “The ETF industry has reached an inflection point in terms of electronification”
McHugh said a number of the largest sponsors in the industry and more than 25 authorised participants have used FundConnect in the US and more than 70,000 transactions have been processed over the portal since 2008.
ETFs sponsored by State Street, SPDRs, are the first to go live on FundConnect in Europe but McHugh said products from rival sponsors will be added.
“In Europe we expect to add more sponsors in six months or so,” he said. “Authorised participants like one destination where they can create and redeem ETFs from multiple sponsors and where they can extract all their reporting.”
Alexis Marinof, head of SPDR ETF in Europe, Middle East and Africa, said in a statement: “We believe developments like FundConnect, that help support liquidity providers across Europe, will play an important role in enabling the ETF industry to grow.”
ETFs and ETPs listed in Europe had net inflows of US$5.4bn in January this year, according to research provider ETFGI’s Global ETF and ETP industry insights report.
The largest net inflows of $4bn were into equity, followed by fixed income with inflows of $2.1bn, while commodities had net outflows of $705m. In contrast the US suffered net outflows of $15.5bn last month.
Deborah Fuhr, managing partner at ETFGI, said in a statement: “The buying patterns of European based investors indicates that they are more confident about developed markets including the US than investors based in the US in January 2014.”
In Europe in January UBS gathered the largest net ETF/ETP inflows of $1.8bn. BlackRock’s iShares was second with $1.3nn followed by Societe Generale’s Lyxor with $1.2bn of net inflows last month.