LONDON BlackRock (BLK.N), 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 said.
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.
(Reporting by Clare Hutchison; Editing by Louise Heavens)