US bank Citi has launched a third-party platform in Asia for exchange-traded funds that packages the bank’s large market-making business with an array of fund services, providing a unified offering for ETF issuers.
Citi ETF Services is being positioned as a third-party platform for exchange-traded funds, providing a full range of services, from execution to clearing and ETF settlement services. ETF executives agree that it makes sense for Citi, one of the biggest market-makers for several of the largest ETFs in the region, to integrate its fund services into a formalised platform.
Citi’s global transaction services and global markets divisions are jointly operating the platform by facilitating its market-making, seed capital, administration, custody and accounting services.
It is being co-headed by Bob Simon, the program trading head for Citi Global Markets in Hong Kong, and Jeff McCarthy, global head of ETF products in New York. They will retain their roles and report to Hong Kong-based David Russell, Citi's head of securities and fund services in Asia-Pacific, and Tokyo-based Richard Heyes, head of equities for Pan Asia.
The platform, which makes use of the bank’s existing services, has been 18 months in the making, says Simon. “It brings together, in a more formalised fashion, our capital markets and securities fund services so that we’re able to give [ETF issuers] a front-to-back solution.”
It is available to ETF providers globally, but has been formalised and announced in Asia to capitalise on the rapid growth of the regional market. “It’s a unique period in time for ETFs in Asia, versus the rest of the world,” says Simon.
While the platform is capable of servicing large global and smaller Asian fund firms, Citi is targeting ETF issuers that will make use of the full service suite, according to Simon.
The offering is less likely to be of interest to international non-Asian players. For example, Marco Montanari, Asia-Pacific head of db-X trackers, Deutsche Bank’s ETF arm, thinks it is an interesting initiative but not something his firm would use, because all its custody, fund admin and other services are done out of Luxembourg, where its funds are domiciled.
Citi expects to have about six products on the platform in Asia by the year's-end – including a Hong Kong-based ETF tracking mainland stocks – and grow to at least 15 by end-2012, says Simon.
While the platform would provide Citi with a convenient means of offering its own branded ETF, Simon says the bank has no plans to do so. “We’re always open to new opportunities, but as of right now, that is a direction that we've not moved towards.”
Instead, the bank is eyeing opportunities to serve China ETFs. Citi aims to offer direct asset custody in China, an area not yet open to foreign firms. However, CP Yap, Citi head of securities and fund services, notes that there has been progress towards approval of a circular in Beijing that would enable foreign banks to offer domestic custody. “Once we can do domestic custody, we will be able to support ETFs in China.”