Pietro Poletto of the London Stock Exchange Group explains how listings will aid ETF investors
Three ETFs recently became the first to be admitted to the London Stock Exchange via a new route to market. The route allows ETFs already listed elsewhere in Europe to be admitted to trading without being admitted to the Official List. The advantage for issuers is that, having already fulfilled the EU’s listing requirements when issuing their products for the first time, they may now admit the same products to trading in London without producing a new set of documents and conforming to the Official List’s additional requirements. Investors will benefit from the availability of a wider range of products, still backed by the transparent standards set out by the EU for regulated markets products.
Of course, for issuers choosing London to launch their ETFs in Europe, the standard route to market, via a listing with the UK Listing Authority (UKLA), is necessary. This route is also more appropriate for issuers wishing to access investor audiences bound by mandates requiring them to invest in UK-listed securities only, or for those seeking to achieve the most comprehensive standards of regulation for their products.
With two possible routes to market for ETFs being admitted in London, the choice of route depends on the needs of the issuer.
Route one: admission with a UK listing
To be admitted to trading on the London Stock Exchange via this route, ETFs must first be admitted to the Official List. The process involves applying to the UKLA, part of the UK Financial Services Authority (FSA), to obtain confirmation that the fund is Ucits III compliant and to be ‘recognised’ for distribution in the UK. In addition to the standard prospectus, and in common with all companies with UK primary or ‘premium’ listings, the fund must nominate and retain a sponsor, a third party that will work with the fund and give the UKLA ongoing additional assurance that the requirements of the listing rules are being met.
Following admission to the Official List, and subject to meeting the Exchange’s admission and disclosure standards, the fund can be admitted to the main market for trading. These standards include a short and straightforward set of rules that explain issuers’ responsibilities and set out the processes involved with being on London’s markets.
The advantage of bringing ETFs to market via this route is that by admitting their products to the main market as UK-listed securities, issuers are gaining access to the widest possible range of London’s broad investor audience, including institutions that are only mandated to invest in London-listed securities. Of course for many ETF providers, a London listing is the first port of call when distributing a new product, as it offers a gateway to Europe’s deepest pool of liquidity: more equity trades take place on the London Stock Exchange each month than on any other exchange in Europe, and so far this year there have been 1.7 million trades in ETFs and ETCs, with a combined value of £47.6bn.
Route two: admission with an existing EEA listing
The new option allows ETFs already listed elsewhere in Europe to be brought to market in London without going through the listings process again in the UK. If an ETF is Ucits III compliant and is listed with an European economic area-competent authority, the issuer may pursue a simplified procedure with the FSA, and then apply directly to the exchange to have its product admitted to trading.
Prospective issuers via this route will still be required to engage with the FSA, as is appropriate for a product with the potential to attract significant retail interest. They will need to provide a certificate of Ucits III compliance from their home regulator, and gain recognition for admission into the UK. This ‘recognition’ status allows the fund to be marketed to private investors.
The product may then be admitted to trading on the main market, subject to conforming with the exchange’s admission and disclosure standards. ETFs admitted via this route will be traded in a distinct trading sector, enabling investors to identify when a fund is not listed in London, but is listed elsewhere in the European Economic Area, though will trade in the same way as London-listed securities and will settle in Euroclear UK & Ireland.
Issuers choosing this route will not be required to comply with additional requirements which are unique to the UK, such as taking on a sponsor for the ETF and producing a specific listing prospectus in addition to the Ucits III prospectus. The ability to admit funds to trading on the London Stock Exchange in this way will provide a valuable reduction in paperwork and costs, while still reaching a wide investor audience. The new route offers an important additional option to issuers, and should help to expand the range of ETFs available on London’s markets.
[asset_library_tag 338,Chart: Overview of two administration processes]
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