GLOBAL - ETF Securities is to launch 'ETF Exchange,' the first multi sponsor ETF issuance consortium, which comprises financial institutions and banks around the world.
Counterparty risk is mitigated, as the ETFs are not reliant upon a single counterparty. Liquidity is enhanced, with multiple market makers offering competitive prices. The new model also uses multiple and interchangeable counterparties in order to stably and accurately track the index.
Until now, all ETF issuers have been owned and run by single financial institutions.
If the issuing financial institution fails in the current ETF issuance model, it is "highly likely" that their ETFs would be "greatly disrupted and potentially liquidated," said ETFS.
More than 15 banks and financial institutions spanning Europe, the US and Asia have registered interest in joining the consortium.
The consortium could bolster the current issuance model with single financial institutions, by diversifying index replication across a range of the strongest financial players, while concentrating liquidity within a single platform.
Members of the ETF Exchange will be able to participate at all levels of issuance, including trading, market making, index replication, management fees and the equity value of the consortium, while member banks can also issue selected white label products.
The ETF Exchange hopes to launch its first tranche of ETFs into the market shortly.
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