Source Opens For Business

April 20, 2009


Source, a European joint venture between Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley, has commenced its operations today with the launch of 13 equity-focused exchange-traded funds (ETFs) and 22 exchange-traded commodities (T-ETCs) in Germany.

The equity ETFs are all swap-based, and track the following indices (management fees per annum are given in brackets):

  • DJ Euro Stoxx 50 (0.25%)
  • DJ Euro Stoxx Select Dividend 30 (0.30%)
  • DJ Stoxx 50 (0.35%)
  • DJ Stoxx 600 (0.19%)
  • DJ Stoxx Mid 200 (0.35%)
  • DJ Stoxx Small 200 (0.35%)
  • FTSE 100 (0.30%)
  • FTSE 250 (0.35%)
  • MSCI Europe (0.30%)
  • MSCI Japan (0.50%)
  • MSCI USA (0.30%)
  • MSCI World (0.45%)
  • Russell 2000 (0.45%)

Source aims to cap overall exposure to swap counterparties at 4.5% of fund assets, while managing the exposure to any single counterparty through its internal credit committee. Swaps will be reset to zero every time a swap counterpart executes a creation or redemption. In addition, there will be periodic resets for any swaps that have not triggered resets in the normal course of business.  Approved counterparties for the swap-based ETFs are the three Source participant banks.

The T-ETCs are all collateralised with US Treasury bills and cash, carry management fees of 0.49% per annum, and track the following total return S&P GSCI indices:

  • Agriculture
  • Coffee
  • Corn
  • Cotton
  • Crude Oil
  • Energy
  • Gold
  • Grains
  • Industrial Metals
  • Light Energy
  • Livestock
  • Natural Gas
  • Non-Energy
  • Petroleum
  • Precious Metals
  • S&P GSCI
  • Silver
  • Softs
  • Soybeans
  • Sugar
  • Ultra-Light Energy
  • Wheat

In a significant departure from accepted market practice for European exchange-traded products, Source does not plan to cross-list its ETFs and ETCs on different exchanges, but will instead concentrate trading in a single location, the Deutsche Boerse in Frankfurt. Source claims that this will increase the volumes of on-exchange trading, which are significantly lower in the European ETF market than in the US.

Source's joint venture platform is still open to new participants. ETF industry sources have claimed that the joining fee for Source is around US$10 million.

Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley are the only authorised participants (APs) for Source exchange-traded products. Amsterdam-based Flow Traders and Nyenburgh are strategic partners of Source and designated official market makers.

Commenting on the launch of Source, Ted Hood, CEO, said: "Source is very excited about the growth prospects of the European market for exchange-traded products. We are convinced that we can bring about even greater growth by offering investors improved products and providing an enhanced trading environment. We will achieve this by creating common product standards focused on increased liquidity, reduced credit risk, greater transparency and more efficient competition."



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