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Industry Roundup: 14 October

BNP Paribas adds green ETF to offerings

BNP Paribas Asset Management (BNPP AM) has launched a new exchange traded fund (ETF) that meets European standards for the Paris Aligned Benchmark (PAB).

The new offering is the BNP Paribas Easy Low Carbon 100 Eurozone PAB UCITS ETF, which selects 100 eurozone companies that are leaders in reducing carbon emissions and follow strict environmental, social and governance (ESG) criteria. It is classified under the Sustainable Finance Disclosure Regulation as Article 9, or a "dark green" fund.

‘Green companies' that actively participate in the transition away from fossil fuels represent at least 5% of the index and are selected by a committee of experts that oversaw the composition and development of the ETF. The index also includes a carbon footprint measurement, considering direct and indirect emissions.

A 13-year track record

BNPP AM's first low carbon ETF launched in 2008 and is now valued at almost €1bn. It recently launched a similar ETF to this one, which tracks a global equity universe for 300 companies.

The PAB standards include such goals as a portfolio decarbonisation target of at least 7% a year, a reduction in the carbon intensity of the index by at least 50% compared to its initial investment universe, and strict exclusion of fossil fuel companies.
The Ongoing Charge figure for the fund is 0.30% and the Synthetic Risk and Rewared Indicator is six.

"We are convinced that to be sustainable, the economy must move towards a low carbon model favouring the energy transition," said Isabelle Bourcier, head of quantitative and index management at BNPP AM. "To meet the expectations of professional and retail investors, BNP Paribas Asset Management is extending its range with the launch of this third ETF, thereby reaffirming its leadership in index solutions focused on ESG themes.".

T+1 settlement likely by 2026, reports Citi

Faster securities settlement following the execution of a trade is confidently predicted by market participants in a survey conducted by Citi.

The group's white paper, Securities Services Evolution, includes survey responses from 15 financial market infrastructures (FMIs) and nearly 400 market participants such as banks, broker-dealers, asset managers, custodians and institutional investors in Asia Pacific, Europe, Latin America and North America.

Achievable goal

Around half of the survey respondents believed that immediate settlement (T+0) by 2026 is attainable, and 46% agreed that emerging technologies, such as distributed ledger technology (DLT), will be a key factor for achieving the goal, while 44% thought that next day (T+1) settlement was possible over the next five years.

In the survey, part of a whitepaper entitled “Securities Services Evolution”, 44 per cent of market participants surveyed expect the prevailing settlement timeframe for equities to be T+1 within the next five years.

Citi's survey found that settlement compression remains among the most pressing issues for the equities post trade industry, together with the planned transition to T+1 and recent global volatility spikes.

New challenges

Among the survey's other findings, 57% would need to invest in additional capability to accommodate any reduction in the settlement cycle while only 29% believed that their existing technology would be adequate.

Citi says that while the pandemic has accelerated and condensed many existing efficiency and digitisation initiatives, it has also given rise to a “whole new set of previously unforeseen challenges”, including managing through periods of higher volatility.

This combination of factors are driving market participants to re-examine how the settlement process could be accelerated and simplified to reduce risk.

It reports that FMIs see the major benefit of reducing settlement cycles as risk reduction, which will in turn enable lower margin requirements and the release of capital. However, 44% of market participants ranked greater efficiency in investment and trading processes as the greatest benefit of a shortened cycle for their respective organisations.

Most FMIs interviewed did not consider technology as a barrier to settlement compression as they had already planned and invested in technology during the previous transition, from T+3 to T+2. Market participants however had an opposing view, with almost 50% indicating that upgrading legacy technology would be a key factor.

Differing concerns

For FMIs the greatest challenge to achieving a shortened cycle was business process efficiency and alignment, but only 10% of market participant respondents of whom only 10 per cent ranked this as a primary key factor. The latter saw cash, funding and liquidity management as the greatest obstacle.

Most FMIs did not view DLT as necessarily essential for settlement compression, but drew a distinction between T+1 and T+0, only seeing a role for it concerning the latter. However, 64% of market participants believe a DLT-based market infrastructure would significantly or moderately improve overall market efficiency and reduce costs.

“Through extensive dialogue with our partners and clients, it is clear that there is an increased need in the industry to strengthen resilience, reduce risk and costs; and enhance efficiencies,” said Okan Pekin, Citi’s global head of securities services.

“This paper not only highlights the benefits and challenges for a shortened settlement cycle, but also the associated emerging technologies and digitalisation efforts underway across the industry.”

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