Euroclear Lowers Fees to Promote FundSettle Platform
February 23, 2007
Franklin Templeton Investments, Invesco, JP Morgan Asset Management, Pictet & Cie (Europe) and Schroder Fund Services Luxembourg have already agreed to support the premier label, as have the transfer agent businesses of JP Morgan and RBC Dexia Investor Services. Fund distributors--the only participants that pay to use the FundSettle platform--are currently charged between EUR4 and EUR9 ($5.20 and $11.70) per transaction, depending on monthly volume. Custody fees will remain unchanged.
About 1,000 asset management firms representing 33,000 investment funds use FundSettle, along with 250 distributors and 470 transfer agents. Euroclear estimates that those that have so far joined the Premier program represent about a third of Euroclear’s daily transaction volume in investment funds. Euroclear expects 20 fund promoters to have signed up for FundSettle Premier by the second quarter, representing about 65 percent of daily transaction volumes.
In addition to lowering transaction fees--for subscriptions and redemptions--fund distributors settling trades in FundSettle Premier funds will also benefit from extended instruction deadlines and quicker receipt of corporate action notifications and payments. Fund promoters, meanwhile, will gain increased efficiency in their communications with distributors and service providers. They will also get new marketing opportunities and back-office cost savings as a larger share of their volumes is automated.
Launched in 2000, FundSettle is one of Europe’s two largest investment funds platforms for cross-border transactions. While Brussels-based Euroclear integrates order routing, custody and settlement in a single package, its competitor Clearstream has decoupled its Vestima+ offering so that clients can choose where they want to settle trades--through local depositories, Clearstream Banking Luxembourg or internally through electronic transfers on the books of fund distributors.
Neither Euroclear nor Clearstream discloses bottom-line results or volumes for FundSettle and Vestima+, but Euroclear’s volumes are reportedly greater. Last month, Euroclear purchased funds messaging service EMXCo, which gives it direct access to the domestic U.K. fund market. Euroclear previously settled U.K. funds for cross-border transactions only. According to Clearstream, 87 fund promoters representing 25,000 funds rely on Vestima+, along with 165 distributors.
Although much of the securities industry has adjusted to automated processing, fund companies and transfer agents have been slower to automate. “Working closely with fund promoters, together we are hoping that the fee reductions and top-tier service levels associated with the FundSettle Premier quality label will provide even greater incentives to increase straight-through processing rates and convert the rest of the market who still rely on paper-based communications and processing,” said Ines Pintaluba, manager of investment funds for Euroclear Bank in Brussels.
In the complex life cycle of fund transactions, investors forward instructions to fund distributors, which pass them on to fund promoters and/or transfer agents that must then reconcile their records with those of fund administrators and custodian banks to ensure that the underlying investors have a correct valuation of their holdings and the correct cash and securities in their accounts. It can cost upward of $30 to complete a cross-border investment funds transaction in Europe. Euroclear estimates that fund distributors can cut processing costs as much as 65 percent using FundSettle.
