* Cross-border ETF to be settled in international security
* Designed to cut transaction costs, boost liquidity
LONDON, June 4 BlackRock, the world's
largest fund manager, plans to issue Europe's first cross-border
exchange-traded fund (ETF) in a move it expects will reduce
trading costs and attract more investors to the product.
ETFs track baskets of shares, bonds or commodities and are
traded like stocks. They offer access to indices without having
to buy the underlying securities.
At present European ETFs are issued and traded on one or
more national stock exchanges. The trades are then settled in
the national securities depository of the country in which the
trade was executed.
If an investor based in one country wants to buy or sell an
ETF listed in another, he must have depository accounts in both
countries, keep each account updated with any changes in the
positions and follow post-trading rules in both jurisdictions.
The process can be complex, costly and time-consuming,
BlackRock, which issues over 600 ETFs under the iShares
brand, aims to bypass that system by launching an ETF with an
international security structure, meaning trades will be settled
in one location.
It hopes that the simplified structure will be used as a
template for further cross-border funds, potentially boosting
liquidity, cutting transaction costs and ultimately growing the
$220 billion European ETF market, which lags well behind the
$1.5 trillion market in the United States.
The U.S. already has a single settlement location.
"In order for the European ETF market to reach $1 trillion
in the next three to five years, the entire market ecosystem
must become more efficient for investors," said Mark Wiedman,
global head of iShares.
BlackRock is partnering with clearing and settlement firm
Euroclear, home to the international central securities
depository based in Brussels, to deliver the cross-border ETF
that is set for launch in the coming months.