State Street Global Advisors is to be the launch customer in Europe of a Bloomberg system that allows managers running fixed income exchange-traded funds to better communicate with brokers when rebalancing their portfolios.
Although fixed income ETFs have seen big inflows – fixed income ETFs had gathered $ 67.6 billion in global assets, according to data monitor ETFGI – much of the back and middle-office functions have been done via emails and spreadsheets, in part due to the low-liqiduity, bespoke nature of bond trading.
Brokers have to manually log onto websites to check which bonds the ETF managers want to buy or sell to ensure they are tracking their chosen index as tightly as possible – the sector is unforgiving of deviation from indices. Only at this point can dealers go out to market to see what is on offer or being demanded.
State Street SPDR ETF unit – the world’s third largest ETF provider – is to be the first ETF manager to use Bloomberg’s BSKT system in Europe. The system enables fund managers to communicate their daily buy and sell needs to brokers in a fraction of the current standard time. In return, the approved persons picking up the buy and sell orders can go to market and fulfil the needs much more quickly than ever before.
The system launched in the US in 2015 and, after six months of testing by SPDR and Bloomberg in Europe this year, is going live in the third quarter of 2016.
Paul Young, head of capital markets at SPDR ETF, said: “It’s interesting when you look at the electronic trading of corporate bonds on platforms, then at the ETF market and how inefficient it is. The funds world is fairly low tech and the fixed income market is still an old-school model. As an issuer, we are trying to reduce some of the friction for dealers and market-makers. It is really important and it improves liquidity for our end-clients.”
Dave Mullen, a senior business manager in fixed income ETF products at Bloomberg, said: “We started with State Street, but it’s a platform we envision will be used by others. At this moment, there are people both in Emea and the US who have expressed an interest in joining. Hopefully, in the next couple of months we’ll be able to name names.”