NSCC, subsidiary of DTCC, is allowed to implement creation and redemption process for an expanded product base

The Depository Trust & Clearing Corporation (DTCC) has expanded its create-and-redeem service for exchange traded funds (ETF) to include using cash as the sole underlying component, in order to support the continued growth of the market and reduce risk and costs for participants.


The service enhancement now allows investors and agent banks to have virtually all domestically-traded exchange traded funds transactions eligible for the creation and redemption process through the Depository Trust & Clearing Corporation subsidiary, National Securities Clearing Corporation (NSCC).


Previously, creates and redeems for ETFs whose underlying components were not eligible for processing at NSCC, including those containing commodities, foreign equities, credit default swaps and exchange traded notes (ETN), had to be processed ex-clearing or outside NSCC.


Susan Cosgrove, managing director of the clearance and settlement group of DTCC, said: As investments in ETFs have surged and the marketplace has evolved with the introduction of new products, it is critical for the post-trade infrastructure to adapt to support this continued growth. This enhancement allows NSCC to process creates and redeems for an expanded product base and also offers investors and agent banks the benefits of our central counterparty guarantee and netting.


As part of the service development, NSCC is offering an optional short-settlement cycle of one day (T+1) instead of three (T+3) for ETF transactions.


A shorter settlement cycle enhances liquidity and allows the ETF settlement to coincide with the settlement cycle for certain components of ETFs that may be shorter than T+3, like commodities Cosgrove said.