Last Updated: 3 June 2023
ETFs could become more widely available on wrap platforms if a tie-up announced today by Euroclear and db X-trackers is anything to go by.
The full range of about 180 db X-trackers ETFs will now be available to trade at official net asset (NAV) prices through Euroclear’s EMX messaging system, meaning UK fund distributors and intermediaries will be able to route ETF subscription and redemption orders using the same infrastructure they currently use for mutual fund order flows.
db X-trackers has been offering some clients the ability to trade at NAV for over two years, but the access via EMX will open this up to a wider range of market participants. It will allow them to cut out the third parties they may have previously used for ETF transactions.
Yannic Weber, chief executive officer of Euroclear UK and Ireland, said: “A major service feature is that our clients and their intermediaries can buy ETFs directly from the product provider, cutting out the need and cost of separate relationships.”
Nathan Hunt, head of UK fund sales at Euroclear, said the company expects other ETF issuers to follow in db X-trackers’ footsteps, with many keen to target wrap platforms in particular.
He explained: “One of the reasons why we have seen a lot of interest, not just from Deutsche Bank but from other ETF issuers and authorised participants as well, is that they are very keen to access the retail market in the UK.
“These ETF product providers are very much targeting the wrap platforms. The vast majority of wrap platforms in the UK use EMX to route mutual fund transactions, and EUI’s Crest system is the standard settlement solution for many UK buyers of ETFs. The beauty of the current offering is that they don’t need to adjust their operations, their connectivity or their style of dealing in order to access our ETF offering. Furthermore, order routing is completely free for platforms and other intermediaries.”
Hunt said wrap platforms had reported an increase in demand from clients for ETFs, but had in some cases been reluctant to add products that they could not access in an automated fashion.
“The whole premise of the wrap platforms is that they automate and drive down costs. They want to avoid sending a fax or making a phone call as this form of manual processing is not only time consuming but also open to human error, particularly for the volumes they do. Such platforms don’t want to add products to their operation that are going to increase internal running costs.”
Manooj Mistry, UK head of db X-trackers, said: “ETFs are already known for their low total expense ratios. By enabling users in the UK to trade directly using NAV-based pricing, costs can potentially be driven down even more.”