Clearstream Fund Centre’s Tancré reports on double digit growth in ETF demand across Europe
News came earlier this month that Deutsche Börse had agreed to acquire the remaining stake in Clearstream Fund Centre from UBS, becoming the sole shareholder of the firm, a European fund distribution platform with more than EUR300 billion in assets under administration.
Clearstream itself is a post-trading services provider and operates central securities depositories with a total of EUR3.1 trillion of assets under custody.
Bernard Tancré (pictured), CEO of Clearstream Fund Centre AG, explains that part of Clearstream’s core business is as a settlement house for security and fund trading, including ETFs.
“Investment funds are one of the asset classes we take care of,” he says. “There you have an additional need for routing because not all funds are traded on the stock exchange, many of them are mutual funds for whom we deal directly through the primary market, routing orders to administrators.”
Otherwise, the fund centre works off the same settlement and asset servicing engine as the wider Clearstream offering.
“One of the connection points with the ETF world is that every ETF traded on the Frankfurt Stock Exchange will settle onto the books of Clearstream, but we are also helping the settlement of ETFs that are multi-listed across Europe with the ‘ICSD’ model. You have to see Clearstream both in the German market, but also in the wider European context.”
Clearstream Fund Centre also facilitates the routing of ETFs for client platforms, whether for wealth managers or private banks, who use Clearstream Fund Centre to trade and hold funds of all types.
“What they like about ETFs is the low charge and the passive nature, but they don’t have the connection or willingness to go through a broker on the OTC market. With us, the best-execution concerns are taken away.”
Clearstream Fund Centre also has the distribution contract between asset managers and distributors, which includes ETFs. “Where there is active distribution of ETFs by the banks connected to the platform, we provide the distribution support services we provide to mutual funds,” Tancré says.
“We provide relevant data, contracts and, most importantly, we are able to supply asset managers and ETF issuers with information on who is holding their funds and how they are doing versus the competition.
“Once the trading has happened and it is settling into our books, we can tell the issuers who is holding the ETF.”
Tancré reports a double-digit growth in ETFs across Europe. “My view is that there is a rebalancing ongoing at the moment, with the real appetite for passive products versus active products now rebalancing between the two. It’s also an easy first entry point into the domain.”
Europe holds many challenges on the settlement side, compared with the US, Tancré says.
“Europe has been dragged behind in terms of penetration by all the difficulties of liquidity and fragmentation compared with the US. If you want to distribute across Europe, you need to be in Frankfurt, London, Zurich, Paris and Milan and in order to do settlement across all those areas you need realignment.
“We try to make that as efficient as possible and we have made some good progress to enable ETFs to compete with other investment funds, and better liquidity is very much helping.”
Clearstream is a global funds business, with clients from 70 different countries, domiciled in more than 45 different jurisdictions. “We are very much the facilitators of the market,” Tancré says. We provide data services but not research or advice, which makes us agnostic as to themes in ETF investing.”