ALFI’s Baratte on the risks and benefits for ETFs under T+1

‘European products will become more costly for investors’

Theo Andrew

The Association of the Luxembourg Fund Industry (ALFI) senior affairs advisor François Baratte said the benefits of a move to T+1 in Europe will mainly favour the sell side while pushing up costs for investors.

In a recent webinar, titled ETF Investigations: The Challenges of T+1 Settlement in Europe, Baratte said the sell-side will see lots of benefits from moving to a T+1 settlement cycle, while the buy-side will “not generate any direct benefits”.

“The sell-side will see lots of benefits including decreasing capital requirements, while custodians will be able to sell more services to ETFs such as the overdrafts they will use to bridge the liquidity gap,” he said.

“From the buy side perspective, the T+1 initiative does not generate any direct benefits for EU assets managers, but only additional cost. There are lots of extra costs of funding and a lot of extra costs for trading.”

As a result, Baratte noted that European products will become more costly for new European investors.

He stressed a “phased-in approach” should be developed for Europe’s move to T+1 to ensure a smooth transition and added “proper settlement efficiency” should also be established as a prerequisite to any move.

“Regarding the cash penalty regime, it is important industry players respond to ESMA’s consultation to tell them it is a prerequisite for a move to T+1.”

Speakers in this webinar include:

  • Jim Goldie, head of ETF capital markets and indexed solutions, EMEA, Invesco

  • François Baratte, senior affairs advisor at ALFI

  • Pablo Garcia, post-trade manager at AFME

ETF Investigations is a new webinar series from ETF Stream which examines the key issues facing ETF investors in Europe. To watch a full replay of this webinar, click here.


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