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ICE Aims To Expand ETF Hub Internationally

Peter Borstelmann, head of ICE ETF Hub, said the platform is aiming to expand coverage to international equity exchange-traded funds listed in the US and ETFs listed in Europe, Middle East and Africa.

Borstelmann told Markets Media: “We are looking to expand coverage to include international equity and EMEA-listed ETFs in response to market demand.”

The platform currently supports US-listed domestic equity and fixed income ETFs.

Intercontinental Exchange began talking to a wide range of ETF market participants two years ago. These conversations showed there was a need for transparent and consistent standards to simplify ETF creation and redemption trading.

“It is part of ICE’s DNA to leverage our strength in technology to bring innovative solutions to drive efficiencies and solve some of the markets’ most complex challenges,” said Borstelmann.

He joined ICE in 2014 as head of corporate development for the exchange’s clearinghouse for credit default swaps ICE Clear Credit, which increased clearing volumes of single name CDS instruments.

ETF creation and redemption

Creating and redeeming ETFs  requires the negotiation of large baskets of securities between issuers, authorized participants and market makers. However, each firm sends data in its own format and the need for manual copying and pasting leads to errors and the process taking much longer than it should.

“The existing process for custom negotiations is extremely manual with market participants using a combination of phone, email, chat or spreadsheets to agree to baskets,” said Borstelmann.

The ETF Hub streamlines this process through its centralized portal and FIX APIs, reduce the time and manual steps involved. FIX messaging is a standard for the financial industry.

Borstelmann explained that all the participants in the ecosystem will benefit from the transparency and scalability created by the ICE ETF Hub, which launched in October last year after being developed in less than a year.

“The order entry functionality was launched first last October, with our community members seeing turnaround time for orders being less than 10 seconds,” Borstelmann added.

He continued that Hub is an industry-wide, open architecture platform with standardized APIs that will allow external parties to establish connectivity as the ETF Hub community grows.

“With the passage of 6c-11, the US Securities and Exchange Commission has allowed a broader range of institutions to assemble baskets,” added Borstelmann. “The ETF Hub enables issuers to offer a solution in a more efficient and expeditious way.”

After launching the order functionality, ICE is allowing market participants to screen, communicate and assemble custom baskets with issuers electronically. The exchange launched a pilot program so market makers can experience the custom basket negotiation functionality in a live production environment. Several market makers, including Jane Street, Old Mission and CTC, have joined the program according to ICE and additional firms are expected to enrol in the coming months.

Growth areas

Last month both Credit Suisse and Wells Fargo joined the ICE ETF Hub as Authorized Participants, tanking the number of APs to seven.

Today ICE announced that JP Morgan Asset Management has joined the ICE ETF Hub advisory committee as a development partner for the platform.

Joanna Gallegos, global head of ETF strategy at J.P. Morgan Asset Management, said in a statement: “As an issuer serving fast-growing ETF markets, we’re aware of the critical need for a robust infrastructure for the primary market that can support our customers’ needs for both investment returns and innovation.”

ICE ETF Hub reported that it processed record notional volume of $148bn (€126bn) in the second quarter of this year, an increase of 9% from the first three months of 202.

Borstelmann highlighted that the two current hot areas of growth right are in fixed income and active non-transparent ETFs.

ICE is launching connectivity between ICE ETF Hub and ICE FI Select, enabling a trader involved in a custom basket request to send a bond or list of bonds to secondary market liquidity with a click of a button. ICE Select provides connectivity to the entire ICE fixed income ecosystem, including all the ICE Bonds execution platforms and ICE Data Services evaluated pricing and analytics.

ETF flows

ETFs and ETPs listed in US had net inflows of $189bn in the first half of this year, 63% higher than the $116bn net inflows gathered a year ago according to ETFGI, an independent research and consultancy firm. Assets of $4.3 trillion invested in ETFs/ETPs listed in US at the end of June are the third highest on record.

Fixed income ETFs/ETPs listed in US had net inflows of $83.6bn in the first half of this year, 28% more than the $65.5bn in net inflows in the first six months of 2019.

In comparison, equity ETFs/ETPs listed in US attracted lower net inflows of $39.9bn over the same time period, which was also less than the $41.43bn in net inflows for the corresponding period to June 2019.

ETFGI also reported that assets invested in actively managed ETFs/ETPs finished June at a new record of $182.7bn.