An Exchange Traded Funds (ETF) is a security portfolio that trades on an exchange as an equity. NSCC's ETF process automates the creation and redemption of ETF securities.

Overview

An Exchange Traded Funds (ETF) is a security portfolio that trades on an exchange as an equity. NSCC's ETF process automates the creation and redemption of ETF securities. NSCC reports, clears and settles ETFs and their underlying securities through its creation/redemption process. ETF processing also includes a nightly distribution of domestic, foreign and fixed income portfolio information.

NSCC allows participants to customize portfolios by excluding specific securities in lieu of cash. ETFs can also be created and redeemed against cash (in lieu of securities) and thus supports ETF processing when the underlying security is not eligible at NSCC.

NSCC also clears and settles ETFs traded in the domestic secondary market.

Who Can Use the Service

Any NSCC settling member who has entered into an agreement with an Agent Bank and Distributor.

Benefits

NSCC's ETF process provides efficiencies and risk controls, including:

• Provides a nightly Portfolio Composition for each ETF for the following trading day.
• Provides an Instruction Detail file containing the details for each create and redeem.
• Reduces manual deliveries.
• Provides clearance and settlement of the ETF, as well as the underlying components, through NSCC's CNS and Non-CNS settlement processes. Settlement of both the underlying components and the ETFs are guaranteed by NSCC.
• Users can create or redeem a portfolio on a next-day basis.
• Users can create or redeem a customized portfolio with cash in lieu of specified securities.
• Users can create or redeem a portfolio against cash or through the exchange of securities.

How the Service Works

• On T-1, participants receive a Portfolio Composition report/file listing the securities in each ETF. This file also contains the cash amount in each portfolio. Trades eligible for cash creates and redeems show a cash creation amount on the portfolio composition file.
• On Trade Date (T), a participant places a creation/redemption order through the Distributor. After receiving the order from the Distributor, the Agent Bank transmits an Instruction File for the creates or redeems to NSCC.
• On the night of T, NSCC sends an Instruction Detail File showing the details of the creates and redeems to participants with activity. The report serves as the contract for the creation/redemption activity.
• Both the components and the ETF are processed through DTCC's normal equity clearance and settlement systems.
• Cash amounts, including dividends held by the funds, and fees are sent directly to money settlement and are settled under a unique NSCC money settlement code.

For More Information

Please call Relationship Management at 888-382-2721.