Deutsche Börse and Clearstream launch joint funds trading on exchange
– More than 80,000 mutual funds can be made eligible for trading via Xetra
– Major advantages: cost reduction, immediate execution, price transparency and reduction of operational risks
– Potentially 700 billion euros of new collateral through re-use of funds
Deutsche Börse and Clearstream, the central securities depository (ICSD) within Deutsche Börse Group, have launched their joint funds trading on Deutsche Börse’s cash market Xetra. As of today, more than 80,000 investment funds that are currently on Clearstream’s order routing platform Vestima+ can be introduced for trading via Xetra by market makers (funds specialists). After execution, the funds will be settled through Clearstream’s post-trade facility for mutual funds, the Central Facility for Funds (CFF).
Currently, in the primary market, the value of an individual funds share can only be identified the next day, i.e. once the net asset value has been calculated. Stock exchange execution will allow individual funds units to be priced and monetized immediately. Accordingly, customers trading investment funds on exchange and pooling them within Clearstream can use their funds units as collateral to efficiently secure financial transactions involving counterparty risk.
Rainer Riess, Managing Director of Deutsche Börse and Head of Market Development Xetra, said: “We are modernizing the archaic funds distribution model. Trading mutual funds on exchange significantly reduces end-to-end cost for investors and brings all advantages of stock exchange trading to the funds world, i.e. immediacy of execution, price transparency and reduction of operational risks.”
Philippe Seyll, Member of the Executive Board and Head of Investment Funds Services at Clearstream, said: “By linking Vestima+ to a stock exchange, we create an additional distribution venue for investment funds for our clients. In an environment where almost no financial commitment occurs without being secured, the new offering will also create a new large source of collateral of around 700 billion euros that is currently immobilized.”
Exchange Traded Funds (ETFs) are tradable on Xetra since 2000, mutual funds since 2006. Currently, more than 3,500 funds are admitted to trading on Xetra. Under the new joint Deutsche Börse and Clearstream offering, fund specialists can introduce funds – according to market demand and pending certain regulatory preconditions – from the universe of additional 80,000 mutual funds, including almost all European cross-border funds. With this offering, Deutsche Börse Group creates an additional extensive secondary market for mutual fund shares.
Clearstream’s Vestima+ enables direct handling of the entire process chain from order capture to settlement and custody. The advantages of the system are numerous: cost reduction, high availability and real time trading data. This streamlines settlement processes for investment funds also considerably lowers operating and administrative costs, and reduces operational risks and sources of error.