BNY Mellon launches comprehensive technology solution for non-transparent ETFs

New York-based investment company BNY Mellon has launched an end-to-end technology solution to support ActiveShares for non-transparent actively managed ETFs. 

This solution delivers a digital workflow from order placement through to execution of underlying securities associated with creation and redemption activity.

Within BNY Mellon’s digital platform, the new solution incorporates the Authorised Participant Representative (APR) and Verified Intraday Indicative Value Agent (VIIV Agent) in daily ETF workflows to enable efficient investor access without daily holding disclosure. The platform includes security restriction and approval processing features within the order ticket, eliminating the need for off-line phone and email communications. This results in a fully digital audit trail for all ETF orders and brings the APR role into deal handling.

“As periodically-disclosed and non-transparent active products become more prevalent in this space, BNY Mellon is excited to support ActiveShares ETFs and other new proxy-based active ETFs with our technology solutions,” says Jeff McCarthy, global head of exchange traded products at BNY Mellon Asset Servicing. 

“Our industry experience allows us to offer solutions to wrap any passive or active investment strategy in the ETF structure. Leveraging both our asset servicing and capital markets franchises, BNY Mellon is able to deliver a full-service solution by acting as the ETF Servicer and the Authorised Participant Representative.”

ActiveShares products are designed to merge key advantages inherent in a traditional ETF wrapper with the strategy-protecting disclosure requirements of an actively managed mutual fund. This new structure was created by Precidian Investments and gained SEC Trading and Markets approval in 2019. 

Within this new process flow, an executing broker (referred to as an APR) is inserted in the middle of the creation/redemption mechanism to keep the investment strategy of the product confidential. An APR is essentially an agent working on behalf of a traditional AP to exchange a basket of securities and cash to create or redeem a large block of ETF shares in-kind.

Mark Criscitello, founding principal at Precidian Investments, recognises BNY Mellon’s partnership with the ETF ecosystem, saying: “Precidian is proud to have BNY Mellon as one of our primary service providers as we bring ActiveShares to market. We are grateful for their steadfast support of the structure and the industry. They solved for authorised participant cash-in-lieu restrictions right in the order ticket.” 

Legg Mason plans to be one of the first-movers to launch under the model with BNY Mellon as their ETF service provider.
 
“The importance of a basket that fully reflects everything happening in the portfolio, like daily portfolio manager trading or corporate actions, is critical to the integrity of both the VIIV and arbitrage process for market makers,” says Brandon Clark of ETF product management at Legg Mason.