Clearstream’s Monthly Report

• European and Asian Exchange Traded Funds offer attractive lending returns
• Clearstream Chairman Tessler: Growing demand is curtailed by settlement challenges

Demand for Exchange Traded Funds (ETF) is steadily growing. The market now has a value of more than 450 billion Euros with over 2,200 products in at least 20 countries. However, the boom is curtailed by settlement and realignment challenges within the fragmented European market, notes Jeffrey Tessler, Chairman of Clearstream and member of the Executive Board of Deutsche Börse. “In Europe, ETFs are listed on multiple exchanges in different regions. As a result, trading desks have to hold multiple accounts with all Central Securities Depositories (CSDs) with differing post-trade practices”, he stated. The necessary realignments of positions between CSDs on the post-trade side when ETFs are traded across borders can create extra cost and complexity.

Difficulties arise when multiple CSDs are separately connected with the registrar of the fund. To avoid realignments at the register, it is most efficient to issue the fund through one single CSD or through an International Central Securities Depository (ICSD), such as Clearstream. ICSDs facilitate the issuance and settlement of multi-listed ETFs. Both the settlement and the distribution take place in the ICSD, resulting in simplified inventory management and cost-effective trading between different venues.

Clearstream provides ETF issuers with global access to investors in over 50 markets as well as settlement in over 40 currencies. ETFs can also be used for collateral management and securities lending within Clearstream’s Global Liquidity Hub. “Currently ETFs enjoy the highest equity securities lending rates, with European and Asian ETFs offering particularly attractive lending returns,” Tessler said.  

Deutsche Börse Group’s ETF offering covers the full lifecycle. Once the ETF has been designed and issued, it can be distributed on the German stock exchange, Europe’s largest ETF platform by order book turnover and number of listed products. The trades will then be cleared by Eurex Clearing and settled and distributed by Clearstream.