M&G is set to become the first fund group in the UK to offer its fund range via electronic settlement on Euroclear’s Crest system, making fund transactions as efficient as buying shares.
The move, reported by New Model Adviser® sister publication Wealth Manager, marks a watershed moment as it could pave the way for other fund groups to make fund dealing in their ranges simpler. It also provides a central counterparty for settlement between funds for the first time, mitigating credit risk.
Until now, UK funds have settled trades manually, making it expensive, time-consuming and open to errors. Documentation is created by mail, while cash instructions can be delayed, missed or sent to an incorrect counterparty.
Mike Deverell, investment manager at Cheshire-based Equilibrium Asset Management, welcomed the move. 'Trading is relatively manual so that's difficult if you're trying to switch from one fund to another, as there are issues of market timing,' he said.
'It's about time this happened and all of the fund groups should get on it. Through Crest, the deal is immediately confirmed and guaranteed, it's all automatic, and you know you're going to get your money.'
The move by M&G follows an agreement with Euroclear, which has worked closely with fund registrars to allow the system to accommodate funds.
As part of this process, fund administrator IFDS has built an electronic link to Crest in order to exchange fund holding details in real time, with daily reconciliations of positions.
The settlement banks that will form part of the service will make and receive payments based on electronic instructions. Should any of them fold, their obligations will be met by the Bank of England, mitigating counterparty credit risk.
Once the funds are registered on Crest, they can be moved between investors almost immediately, allowing for automatic re-registration.
M&G was unable to comment.