Are you with the right ETF service provider? · 2020-06-12 · Partnering with the right ETF...

00 Are you with the right ETF service provider?

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Are you with the right ETF service provider? How your ETF service provider selection can drive your investors‘ total cost of ownership

http://www.kpmg.com/uk

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© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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How your ETF service provider selection can drive your investors’ total cost of ownership


02

Contents Page

01 Introduction 03

02 Executive summary 04

03 How ETF servicing impacts your 05 investors' total cost of ownership

04 How ETF servicing has evolved 07

05 How ETF servicing works today 09

06 What leading ETF servicing looks like 11

07 What issuers and authorised 13 participants are thinking

08 Conclusion 21

09 Glossary 22

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01/ Introduction Background to this report

The low cost nature of ETFs relative to active mutual funds has been an attractive feature for all types of investors and helped ETFs become one of the most popular investment vehicles. The headline fee for ETFs, has for many years been the total expense ratio (TER): however, this does not capture the full costs of owning an ETF. In recent years, issuers have promoted the total cost of ownership (TCO) as a measure of the full costs that can drag on an ETF’s investment return over time.

The TCO includes other fund costs and liquidity costs. Liquidity costs are driven by a number of factors, one of those being the efficiency of the specific ETF range’s primary market.

It is therefore, not surprising that regulators have recently focused on the impact of liquidity costs and risks. The Securities and Exchange Commission (SEC) is exploring a requirement for issuers to publish average spread metrics for their ETF ranges, and the Central Bank of Ireland is focusing on the role of the authorised participant (AP) in accessing the primary market and providing liquidity to investors.

Given the importance of the primary market in driving secondary market liquidity, and by extension, an ETF investor’s TCO, we set out to explore how an issuer’s choice of asset servicing firm could impact their ETF investors’ TCO, and if so, to what extent.

We would like to thank JP Morgan Investor Services for their co-sponsorship of this study and all our survey participants for their time and input into this survey. For the avoidance of doubt, the views contained herein are those of KPMG; JP Morgan did not have editorial oversight. All survey participants were made aware of JP Morgan's involvement.

Our core survey hypothesis

“ETF spreads, premiums and discounts are important elements of an investors total cost of ownership. Service providers can play a key role in reducing friction in the primary market process, helping to drive secondary market liquidity.”


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02/ Executive summary

04

KPMG met with ETF issuers and APs to conduct a survey of current experiences with ETF service providers, and to understand their views on how ETF servicing drives secondary market liquidity and an investor’s TCO.

What we asked We asked key issuers and APs the following core questions:

A. Do you see a link between ETF servicing, secondary market liquidity and an investor’s TCO?

B. How well are you supported by your current ETF service provider?

C. What functionality do you consider leading? And do your ETF service providers support it?

D. Do you expect greater regulatory scrutiny to be around the role of the AP?

Our findings A. Our survey of issuers and APs confirms our hypothesis that the functions asset servicing providers perform do have a

meaningful impact on secondary market liquidity and investors TCO.

B. No firm is completely happy with the service it is are receiving. Furthermore, the level of satisfaction across the coreactivities varies markedly, driving a significant spread between the 'best' and the 'worst' service experiences.

C. Our survey and interviews have identified a number of leading features.

D. All respondents expect greater regulatory scrutiny around the role of the AP in providing liquidity in thesecondary market.

What this means for existing and new ETF issuers Both existing and new issuers will be well placed to review their asset service arrangements and ensure that they are receiving leading levels of service that can help reduce their investors’ ETF TCO.

In the same way 'not all ETFs are created equal‘– 'not all ETF service providers are the same'. Partnering with the right ETF service provider can make an issuer’s ETFs more competitive by reducing the total cost of ownership. 88%

Does your ETF service provider meet expectations?

88% of survey respondents said they had mixed feelings.

Yes

Mixed feelings

Jorge Fernandez RevillaPartner and EMEA ETF Leader, KPMG Ireland.


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03/ How ETF servicing impacts your investors' TCO The exchange-traded and open-ended characteristics of ETFs provide unique and valuable liquidity features for investors. The roles of authorised participants (AP) and service providers are fundamental in driving ETF liquidity.

What is total cost of ownership and why is it important? The total cost of ownership (TCO) of an ETF is a metric that investors can use to understand the full costs of investing through an ETF. TCO can be used to compare similar ETF exposures from different issuers with each other, and to compare ETFs against mutual funds.

Selecting ETFs based on total expense ratio (TER) alone does not necessarily mean investors select the ETF with the lowest overall cost. TCO accounts for all of the costs incurred in trading and holding an ETF. These costs include all of the fund costs that drag on returns over time, and the liquidity costs of trading into and out of the ETF. Figure 1 shows the components of an ETF’s TCO, and the potential impact on an investor’s returns.

ETF liquidity costs and the impact on TCO Costs in relation to buying and selling ETFs can have a meaningful impact on an investor’s TCO, and therefore on their investment returns. We define liquidity costs as the costs associated with buying and selling ETFs. This includes an investor’s brokerage fee, the bid/offer spread that is crossed on entering and exiting an ETF investment, and the cost of buying or selling the ETF at a price that is different from the value of the ETF holdings – known as a premium or discount to fair value (FV).

The exchange-traded and open-ended nature of ETFs provides valuable and unique trading characteristics to investors. The benefits of this unique mechanism are that investors can buy and sell ETFs intraday at a known price, and that price reflects the FV of the underlying securities held by the ETF. This process is made possible through the role of the APs.

Our Hypothesis ETF spreads and premiums/ discounts are important elements of an investor’s TCO. Service providers can play a key role in reducing friction in the primary market process, helping to drive secondary market liquidity.

©© 2019 201 KKPPMMGG LLPLLP,, aa UUKK lliimmiitted ed lliiaabibilliittyy paparrttnernersshihip p aand nd aa mmememberber ffiirrmm ofof tthe he KKPPMMGG netnetwwororkk ofof iindependentndependent mmemembeber r ffiirrmmss aaffffiilliiaatted ed wwiitth h KKPPMMGG IIntnterernanattiionaonall CCooperooperaattiivve e ((“K“KPPMMGG IIntnterernanattiionaonall”)”),, aa SSwwiissss ententiittyy.. AAllll rriightghtss rreseserervved. ed.

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The role of the authorised participant APs make money through the bid/offer spread investors trade at and through the risk free returns of arbitraging away premiums/discounts on the ETF. This is a competitive endeavour and the tighter the spreads they make, the more flow they capture. Likewise, the more opportunities they get to arbitrage premiums and discounts, the more money they make.

To facilitate client flow and conduct arbitrage trades, APs need: 1) transparency on the ETF holdings; and2) an efficient process for creating and redeemingETF units with the fund.

The explicit costs of accessing the primary market will be passed on to the investor through the bid/offer spreads and through a widening of the arbitrage band. There are also implicit costs that relate to friction or uncertainty in the primary market process that are passed on to the investor in the same way. See figures 2 and 3.

06

The role of the ETF service provider ETF service providers play a key role in facilitating the primary market process through their roles as transfer agent, fund accountant and custodian for the ETF. The service providers who develop ETF servicing platforms, which reduce cost and remove uncertainty from the primary market, help APs in their role as liquidity providers and arbitrageurs, and ultimately reduces the TCO for investors.

Issuers looking to drive competitive TCO across their product ranges should focus on liquidity ‘costs as a key differentiator. Partnering with the best APs, and selecting the right ETF service provider can reduce the costs and friction of creating and redeeming in the primary market, supporting the critical role the APs play.

Jorge Fernandez RevillaPartner and ETF EMEA Leader, KPMG Ireland. ‘ © 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The creation/redemption spread represents the pricing levels at which it becomes profitable for APs to conduct arbitrage activity

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04/ How ETF servicing has evolved The European ETF market has grown and evolved significantly since the first launch 18 years ago. In that time over 60 new issuers have launched over 2,000 ETFs across a range of new asset classes and strategies. ETF assets are concentrated with a small number of service providers that invested in and developed their capabilities early on. In recent years, a number of new service providers have developed capabilities and entered the ETF market as illustrated below.


Early years — Pioneering European ETF issuers launched

— The first asset servicing firm s developed their capabilities to support the new specific requirem ents of ETFs

Illustration of European ETF main market developments since 2000, all figures and dates are indicative only, and not all ETF issuersand service providers are included.

Based on KPMG data sources etfgi, Morningstar and secondary research sourced from the internet and data in the public domain.

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2008 – today

— ETFs gain mainstream acceptance across investor types

— ETF assets and trading volumes surge

— Number and complexity of products increases dramatically

— New asset servicing providers enter the ETF market

— M&A activity across the industry

2019 onwards

— Active asset managers enter the ETF market

— Mutual funds launch ETF share classes

— Retail market for ETF takes off

— New direct to consumer (D2C) solutions developed

— Focus on TCO

08


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© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent memberfirms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


05/ How ETF servicing works today Five key areas of ETF servicing drive investor total cost of ownership.

ETF platform

P 1Why is an ETF platform important?

The ETF platform is the technology, systems, people and process that supports the asset servicing and ETF specific elements of an ETF.

What goes wrong?

ETF platforms that are not fully integrated with the core transfer agency, accounting and custody systems can suffer from errors and timing issues due to manual processes.

Why is the PCF process important?

The PCF lists what is in the fund and helps APs determine the fair value for an ETF unit throughout the day. It also helps APs determine the costs of creating and redeeming ETF units. The PCF needs to be made available before market open to ensure APs can quote a bid/offer spread.

What goes wrong?

The PCF can be wrong and/or late. When this happens, APs typically quote a wider spread, or do not make a market at all. As the AP will not know with accuracy the cost of creating and redeeming units, they may not arbitrage away premiums/and discounts as actively.


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How your ETF service provider selection can drive your investors total cost of ownership 10


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How your ETF service provider selection can drive your investors' total cost of ownership

2 3 4Why is the order takingprocess important? APs need to create and redeem units to manage their inventory. An efficient process gives APs confidence they will be able to meet their obligations to clients and reduce the costs of holding excess ETF units. Flexibility in how orders are traded and settled helps reduce AP costs. Costs are typically passed on to the investor through the spread.

What goes wrong? Portals can go down. Orders can be missed and trading and settlement instructions can be misread.

Why is the cash component important? The cash component tells the AP how much their orders cost to execute. The AP needs to deliver this cash amount to the service provider in order to receive ETFs. To enable quicker settlement, an estimated cash component can be calculated and trued up when the actual costs are known.

What goes wrong? The cash component can be wrong or delivered late. If the cash component is wrong it will need to be recalculated, delaying settlement.

Why is ETF settlement important? If ETFs fail to settle, the clearing house may buy-in the ETF stock to ensure settlement and pass back costs and fines to the AP. Free of Payment (FOP) orders can only be released once full cash is received.

What goes wrong? Settlement instructions can be incorrectly entered. ETFs allocated for settlement by an AP can get used by another part of their business, meaning they are short on settlement date. FOP orders can take time to release.

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06/ What leading ETF servicing looks like Automated processing based on real time* information is fundamental to a leading ETF platform.

1

Our analysis of leading features is based on the survey responses from all participants.

*Time lags in system processing can mean a slight delay in actual real time.


A leading ETF PlatformThe platform is robust, automated and scalable. It integrates global transfer agency (TA), fund accounting and custody capabilities providing real time* access to positions, pricing and workflow status.

Leading features

—— API connectivity, STP to the service provider with real time* accuracy

—— Globally supported, holistic capability

—— Full integration enables an exception--driven process and clear traceability of events

A leading PCF ProcessSupports the broad range of PCF production methodologies and formats. The process is automated and there are robust controls and checks to ensure its accuracy and timely dissemination.

Leading features—— Index and fund PCF production methodologies

—— Systematic check for PCF errors

—— Workflow status

—— Automated corporate actions projections

—— Multi--basket and NAV PCF functionality

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How your ETF service provider selection can drive your investors' total cost of ownership

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A leading Order ProcessEnabled through a portal provided by the service provider, or by an issuer owned portal that links to the ETF service provider’s TA system.

Leading features— Negotiated baskets

— Flexible and intuitive portal

— API connectivity

— Short settlement

— T+0 settlement

— Split settlement

— TA support for non-European hours

A leading Confirmation ProcessAn automated process ensures accuracy and timeliness with minimal human intervention. A robust collateral process for estimated cash confirms minimises risk.

Leading features

—— Real time* updates

—— System generated confirm files

—— Estimated confirms produced at each new execution

—— Auto--calculated collateral

A leading Settlement ProcessThe efficient settlement of the ETF directly into the required CSD and ICSD helps APs manage their depot positions, reducing settlement costs and buy--in charges.

Leading features

—— Settlement direct to CSD and ICSD

—— Real time* view of settled cash positions

—— Automatic release of ETF

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Are you with the right ETF service provider?

07/ What issuers and authorised participants are thinking

KPMG met with ETF issuers and authorised participants (AP) to conduct a survey of current experiences with ETF service providers, and to understand their views on how ETF servicing drives secondary market liquidity and an investor’s total cost of ownership.

Our core survey hypothesis

‘ ETF spreads and premiums and discounts are important elements of an investor’s total cost of ownership. Service providers can play a key role in reducing friction in the primary market process, helping to drive secondary market liquidity

‘.

75% 70% 90%

Who did we talk to? — The ETF issuers represented in our

survey manage c.70% of ETF AUM in Europe. Sources; etfgi, Morningstar and other readily available ETF market data sources.

— The ETF service providers represented in our survey represent c.75% of the market, and the APs represent c.90% of the market. These figures are compiled from our own market sources as it is information not in the public domain.

What did we ask?

A



Do you see a link between ETF service, secondary market liquidity and an investor’s TCO?

B How well are you supported by your current ETFservice providers?

c What functionality do you consider to be leading?And do your ETF service providers support it?

D Do you expect greater regulatory scrutiny around therole of the AP?

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Key outcomes A 100% of survey respondents agree with our core hypothesis that there is a link between

ETF service, secondary market liquidity and an investor’s TCO.

B Survey participants expressed mixed feelings regarding the current level of ETF service provided by their ETF platform and the key services supported by it:

Settlement Orders PCF Confirmations

Expectations met Expectations not met Mixed feelings

1 2 3 4

P

ETF Platform

c

Survey participants identified a num ber of leading service features that can have a m eaningful im pact on liquidity costs:

1

PCF

Systematic check for PCF errors (within 30 m inutes) of PCF production

Orders

2

T+0 Settlem ent

3

- Auto-calculated collateral on estimates

Confirmations Settlement

4

Settlem ent direct to CSD/ICSD

P

ETF Platform

-Full integration enables an exception-driven process and clear traceability of events

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D 100% of survey respondents expect greater regulatory scrutiny around the role of APs in providing liquidity.

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ETF Platform A Do you see a link between ETF service, secondary market liquidity and an

investor’s TCO?

Survey hypothesis: ETF issuers value a scalable ETF platform that integrates global transfer agency, fund accounting and custody capabilities providing real time access to positions, pricing and workflow status.

5 High 3.80 3.83

4

3

2

1

0 Low

Perceived impact on secondary market liquidity

Issuers APs

B How well are you supported by your current ETF service providers?

Exp ectations not met

Exp ectations met

Worst Best Median

— The average ETF service provider is not — There is a large spread between the best and worst meeting expectations ETF service provider

c What functionality do you consider to be leading? And do your ETF service providers support it?

100% ETF workflow

100% responded that ETF workflow is im portant, only 29% currently

receive this.

83% Connected APIs

83% responded that an ETF platform with connected APIs is im portant, only 38% currently receive this.

80% Real time info

80% responded that integrated real tim e inform ation is im portant,

only 43% currently receive this.


Other findings—— Some ETF service provider platforms have been developed on top of mutual fund platforms resulting in service

constraints, whilst others have been developed specifically for ETFs and can support new service features.

—— A number of respondents do not feel that their service providers can support the growth of their business over the next 3--5 years without investment in their platforms.

—— A number of authorised participants favoured access to ETF data via APIs rather than through graphical user interfaces (GUIs).

—— APs are less interested in tech platform architecture and how data is made available to them, as long as it is accurate, timely and accessible. Issuers are more concerned with how automated and scalable the platform is.

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PCF A


Do you see a link between ETF service, secondary market liquidity and an investor’s TCO?

Survey hypothesis: The accurate production and timely dissemination of PCFs to the market gives APs confidence when pricing ETFs in the secondary market, optimising spreads and minimising premiums/discounts.

4.8 5

4

3

2

1

0

High

Low


4.13

Issuers APs



Exp ectations met

Worst Best Median



100% Systematic PCF check

100% responded that a system atic check for PCF errors is im portant,

50% currently receive this.

100% Automated corp orate actions p rojection 100% responded that a corporate actions

projection calendar is im portant, only 50% currently receive this.

100% PCF workflow status

00% responded that a PCF workflow status was im portant,


1

16


Other findings—— PCFs are very important for non--core ETFs where the holdings are not as transparent (sampled, active).

—— For core ETFs, APs do not place as much significance on PCFs because the fund holdings are more clear.

—— All APs said that they would widen spreads or pull their quotes completely if they are not confident in the accuracy of PCF data.

—— A number of APs stated that it is very unlikely they would support a new entrant if they are not comfortable with their issuer’’s ability to deliver accurate and timely PCFs. This also applies to established funds with low trading volume.

—— APs are more likely to work through issues on ETFs with meaningful flow.

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Orders A Do you see a link between ETF service, secondary market liquidity and an

investor’s TCO?

Survey hypothesis: An efficient ETF order taking process facilitated by a flexible and intuitive ETF portal gives APs confidence when pricing ETFs in the secondary market, optimising spreads and minimising premiums/discounts.

Perceived impact on secondary market liquidity 4.8 5

4

3

2

1

0

High

Low

4.25

Issuers APs


Exp ectations met

Worst Best Median




100% Negotiated b asket functionality 100% responded that a negotiated

basket functionality is im portant, 71% currently receive this.

86% T+0 settlement

86% responded that T+0 settlem ent is very im portant, 0% currently

receive this.

83% Supp ort for non-europ ean hours 83% responded that support for non-European hours is im portant, only 43% currently receive this.


Other findings—— Some providers still take orders by fax or email.

—— APs value the flexibility of the order taking process and the stability of the portal.

—— The process for amending orders ahead of cut off is quicker and easier with some providers than others.

—— No provider currently supports same day (T+0) ETF settlement, whilst most, but not all, issuers support settlement on a T+1 basis.

—— Issuers and APs value the ability to process orders outside of UK hours, giving APs extended access to the primary market.

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’How your ETF service provider selection can drive your investors total cost of ownershipHow your ETF service provider selection can drive your investors’ total cost of ownership

©© 2018 2019 KKPPMMGG LLPLLP,, aa UUKK lliimmiitted ed lliiaabibilliittyy paparrttnernersshihip p aand nd aa mmememberber ffiirrmm ofof tthe he KKPPMMGG netnetwwororkk ofof iindependentndependent mmemembeberr ffiirrmmss aaffffiilliiaatted ed wwiitth h KKPPMMGG IIntnterernanattiionaonall CCooperooperaattiivve e ((“K“KPPMMGG IIntnterernanattiionaonall”)”),, aa SSwwiissss ententiittyy.. AAllll rriightghtss rreseserervved.ed.

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Confirmations A Do you see a link between ETF service, secondary market liquidity and an

investor’s TCO?

Survey hypothesis: An efficient, accurate and speedy cash confirm process ensures ETF units can be delivered in a timely fashion. The ability to release ETF units on an estimated cash component and manage the associated market risk of the fund is important to APs as it provides them with another option when managing their ETF inventory. This gives APs confidence when pricing ETFs in the secondary market, optimising spreads and minimising premiums/discounts.


5 4.1

High

4

3

2

1

0 Low

3.25

Issuers APs



Expectations met

Worst Best Median



100% Click through fills (FX, taxes etc.) 100% responded that click through

fills is im portant, 71% currently receive this.

80% Auto-calculated collateral

80% responded that auto-calculated collateral is im portant,


75% Real time up dated p ortal

75% responded that a real tim e updated portal is im portant,



Other findings—— No service provider allows APs and issuers to access the cash component directly through their service

provider portal.

—— The level of detail provided in the cash confirmations varies significantly between leaders and laggards.

—— Not all service providers provide APs with the granular data they require (execution prices, comms and taxes).

—— A large number of respondents stated that their cash confirmations are produced by people driven processes, rather than automated system driven ones. This impacts the timeliness and accuracy of the files.

—— ETFs are released on estimated cash confirmations that require a true up.

—— Respondents stated that their service providers do not have collateral processes for managing risk when releasing ETFs on an estimate. This opens the fund up to risk should the AP default.

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Settlements


A Do you see a link between ETF service, secondary market liquidity and an investor’s TCO?

Survey hypothesis: The efficient settlement of the ETF directly into the required CSD and ICSD helps APs manage their depot positions, reducing settlement costs and buy-in charges. This gives APs confidence when pricing ETFs in the secondary market, optimising spreads and minimising premiums/ and discounts.

5 High

4

3

2

1

0 Low


Issuers APs


Exp ectations met

Worst Best Median




100% Settlement directly into CSD

and ICSD

100% responded that settlement directly into CSD and ICSD is

important, 88% currently receive this.

100% Real time view of settled

cash positions

100% responded that real time look through into settled cash positions is

important, only 43% currently receive this.

83% Systematic split settlement

83% responded that systematic split settlement is important,


20

— -

—

—

—

—

Other findings— Failed settlement of ETFs can expose APs to the risk of buy-in and the associated costs.

— Lack of confidence and uncertainty around settlement will lead APs to price in that risk to their market making,

resulting in wider spreads and premiums/discounts bands.

— One AP cited a settlement issue specific to a particular service provider that has resulted in their products not being supported on an exchange.

— The ability to settle directly into CSDs and ICSDs is important and now supported by the majority of providers.

— APs can work around issues in most of the creation/redemption steps but issues in relation to settlement are critical.

© 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG Internat ional”), a Swiss entity. All rights reserved.

EDGE OF PAGE

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08/ Conclusion

The European ETF industry has seen meteoric growth over the last 18 years. There are now over 60 issuers and 2000 ETFs competing for asset flow from institutional and retail investors alike. But issuers are not the only ones to benefit from this boon. In parallel, the ETF ecosystem has grown and evolved too. Banks, trading houses, exchanges, index providers and asset servicing firms have all invested and developed their businesses to compete for ETF flows and assets. The ETF space has become increasingly competitive with issuers looking to differentiate themselves through the launch of niche and innovative products, and through the reduction of headline fund fees on core ETF ranges. Optimising the liquidity of ETF ranges has also been a competitive focus, with issuers investing in dedicated capital markets teams. These teams work with trading desks, venues and service providers to reduce bid/ask spreads, deepen order books and reduce ETF premiums and discounts.

In recent times, ETF issuers have promoted a more comprehensive measure of cost than Total Expense Ratio. Total cost of ownership (TCO) captures all of the costs that weigh on an investor’s ETF’s performance over time. TCO includes TER, fund costs, and liquidity costs. These liquidity costs are driven by a number of factors. One key factor is the risk associated with accessing the ETF primary market to facilitate trading flow, or to act on arbitrage opportunities.

Given the importance of the primary market in driving secondary market liquidity, and by extension, an ETF investor’s TCO, we explored how an issuer’s choice of asset servicing firm could impact their ETF investors’ TCO, and if so, to what extent?

Our survey of ETF issuers and authorised participants confirms that the functions asset servicing providers perform do have a meaningful impact on secondary market liquidity and an investor TCO. All respondents agree with our core and supporting hypothesis and all APs said that they would widen their spreads or completely step away from making markets if they thought the risks of supporting an ETF outweigh the gains.

When initially asked if service providers met expectations, less than half our respondents said they met them fully. When we went through each core service in more detail, we found that, in fact, no one felt that their expectations were being fully met, and the majority have mixed feelings, or were unhappy. Furthermore, the level of satisfaction across the core activities varies considerably across our respondents, driving a significant spread between the 'best' and the 'worst' service experiences.

Our survey identified a number of leading features, which are particularly important in reducing ETF liquidity costs. These leading features are not broadly supported by service providers and two, T+0 settlement and auto cash collateral calculation and management, are not supported by any of the providers servicing our respondents.

Finally, all of the respondents agree that there will be greater scrutiny from regulators around the role of APs in providing liquidity to investors. The Securities and Exchange Commission (SEC) is exploring a requirement for issuers to publish average spread metrics for their ETF ranges, and the Central Bank of Ireland is focusing in on the role of the AP in accessing the primary market and providing liquidity to investors.

Given these findings, we believe it is a good time for existing issuers to review their asset servicing arrangements and ensure that they are receiving leading levels of service, and have access to a platform capability that will help reduce their investors’ ETF TCO and support the future growth of their ETF range.

For new ETF issuers, we believe there has never been a better time to shop around and select a service provider that can support their business in the critical growth stages. Service providers that can offer support to new issuers more broadly through their markets and distribution businesses will provide additional value.

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22’


09/ Glossary of acronyms

22

AP –– Authorised Participant

API –– Application Programming Interface

AUM –– Assets Under Management

CSD –– Central Securities Depository

D2C –– Direct to Consumer

ETF –– Exchange Traded Fund

FA –– Fund Accounting

FOP –– Free of Payment

FV –– Fair Value

GUI –– Graphical User Interface

ICSD –– International Central Securities Depository

M&A –– Mergers and Acquisitions

NAV –– Net Asset Value

PCF –– Portfolio Composition File

SEC –– Securities and Exchange Commission

STP –– Straight Through Processing

TA –– Transfer Agency

TCO –– Total Cost of Ownership

TER –– Total Expense Ratio

'

KPMG has collected information from the survey participants but KPMG has not independently verified the information they have provided. The information used in compiling this report may have been incomplete or inaccurate. KPMG accepts no liability for any inaccuracies or omissions.

The view expressed in this report shall not amount to any form of guarantee that KPMG has determined or predicted or events, whether present or future.

The information contained in this report is based on prevailing conditions and KPMG's view (based on information collected from the survey participants) as at 9th November 2018. KPMG has not undertaken to, nor shall KPMG be under any obligation to, update this report or revise the information contained in this report for events or circumstances arising after 9th November 2018.

The report constitutes industry research and is not suitable to be relied upon in terms of making decisions. Any third party who obtains this report uses it entirely at their own risk.

Nothing in this report constitutes legal or investment advice.

KPMG 2019

©KPMG 2019 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Produced by: KPMG’s Creative Services. Publication Date: Jan 2019. (4622)

kpmg.ie

Jorge Fernandez RevillaPartner and EMEA ETF Leader KPMG Ireland

T: + 353 1 410 2776M: +353 87 744 2776E: [email protected]

Gareth BryanPartnerKPMG Ireland

T: + 353 1 410 2434M: +353 87 744 2434E: [email protected]

Sean McKeeNational Practice LeaderPublic Investment ManagementKPMG US

T: +1 817 339 1220E: [email protected]

Alasdair CampbellDirector Wealth and Asset Management Consulting KPMG

T: +44 20 73 113384M: +44 7824 6 25939E: [email protected]

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Are you with the right ETF service provider? · 2020-06-12 · Partnering with the right ETF...

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