It’s the next step in ETF efficiency.
That’s how the Intercontinental Exchange is characterizing its new “hub” for the exchange-traded fund industry, a collaboration between the New York Stock Exchange parent and investment giant BlackRock aimed at simplifying how the over $5 trillion ETF market is traded.
The hub will run on the ICE’s platform and serve as an ecosystem for ETF market participants. Key features include standardized systems for order entry and management, issuer data tracking, messaging and analytics, according to the website.
“What we looked to do is to look at all the assets we have under our umbrella and package them in a certain way, which would bring together the community in a far more efficient fashion,” Lynn Martin, president and chief operating officer of data services at the Intercontinental Exchange, told CNBC’s “ETF Edge” on Monday.
The goal was to create “a centralized location to allow [for] seamless creation and redemption of these ETF assets,” Martin said, referring to the process by which ETF shares are made, bought and sold on the open market.
Because the ETF market’s various players — issuers included — have different methods and technologies for creating and redeeming their assets, the process has been riddled with “delays, confusion” and other issues, Martin said Monday.
“While the processes may be standard, the technology that exists today is not,” she said. “Generally, an issuer maintains their own technology, some of the custodians maintain their own technology, and those technologies really aren’t integrated and aren’t connected.”
“What we’re seeking to do, through message-based protocols, is to integrate all of the ETF ecosystem from issuers, ETF authorized participants, market makers and custodians in a common, seamless workflow,” the COO said.
In the first phase of the hub’s rollout, one of the most important features for these various bodies will be a function that can integrate different types of software into the same workflow, Martin said.
Future phases, she said, will “extend the functionality to allow for the negotiation of custom baskets” of underlying securities, allowing for asset substitutions with “similarly situated securities, securities with the same profiles” as the ETF’s tracked assets and “a cash-in-kind process.”
“It’s the same exposure, but allowing you to do it in a much more efficient fashion,” Martin said. “We believe this is going to help the ETF market grow.”
Mary Ann Bartels, head of ETF strategy at Bank of America Merrill Lynch Global Research, said in the same “ETF Edge” interview that her firm was a “happy” partner in the ICE’s mission.
“The transparency, I think, is going to be one of the most important things, and Bank of America’s very happy to also partner because we feel that there’s a need for this,” Bartels said. “The No. 1 question I get is, ‘When are ETFs going to blow up the market?’ And, again, getting to the concern about creation, redemption and liquidity, I think this, what you’re doing, really establishes that ETFs are here to stay and not to necessarily blow up the market.”
