Clearing Corp. Moves To Increase ETF Liquidity

December 03, 2008

The change also allows the NSCC to process transactions for less frequently traded bond funds.


The Depository Trust & Clearing Corporation (DTCC), the central clearing agency for the U.S. funds industry, is now accepting cash-only creations and redemptions for exchange-traded funds.

The move is one of several announced recently by the DTCC that are intended to increase liquidity and reduce risk and costs for ETF market participants.

Previously, creations and redemptions for ETFs using commodities, foreign equities, credit default swaps and exchange-traded notes were not eligible for processing at DTCC subsidiary National Securities Clearing Corporation (NSCC), which serves as a central counterparty guarantee for investors.

The variety of asset classes comprising U.S.-listed ETFs has grown rapidly beyond domestic equities to include global/international equities, fixed income, commodities and currencies. That trend has precipitated the DTCC/NSCC expansion.

NSCC is also cutting down on the settlement cycle for ETF participants, offering an optional shortened settlement cycle of one day (T+1) instead of three (T+3) for ETF transactions. That is a change that can enhance the liquidity of ETFs, and better mirrors markets where underlying securities of ETFs already have a shorter settlement cycle, such as the commodities market.

The change also allows the NSCC to capture and process ETF creations and redemptions for less frequently traded corporate and municipal bonds and unit investment trusts.



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