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View the article online at http://citywire.co.uk/wealth-manager/article/a657102

M&G to make funds as easy to trade as shares in landmark Crest deal

by Emma Dunkley on Feb 08, 2013 at 08:05

M&G to make funds as easy to trade as shares in landmark Crest deal

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 marks a watershed moment as it could pave the way for other fund groups to make fund dealing in their ranges simpler, while providing a central counterparty for settlement between funds for the first time, mitigating credit risk.

Until now, the multi-billion pound UK fund industry has 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.

These issues have been a significant burden for many fund buyers, particularly wealth managers, who welcome the move by M&G.

‘Crest settlement should be much less primitive and clunky, and less expensive to administer,’ said Nick Sketch, senior investment director at Investec Wealth & Investment.

‘Switching between funds should get easier if both are dealt on a T+3 basis, than it is when the fund sold pays me in five days, or four days plus forward pricing, and the fund bought wants paying in three,’ he added.

Another industry source added: ‘The complexity and scale of daily effort required for settlement makes understanding current cash positions and predicting future cash flows a very difficult task. Even if the dealing itself is automated, settlement instructions are not.’

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, IFDS Group 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.

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4 comments so far. Why not have your say?

Not all ETF's are the same

Feb 08, 2013 at 08:25

This is excellent news, and long needed. The mutual fund industry is massive and ultimately clients should benefit through improved administration, quicker settlement, lower costs and better transparency.

Let's hope this is the start of many. Well done M&G

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Andy Y

Feb 08, 2013 at 10:52

This might be a stupid question but this wouldn't mean a move towards having the same cost of trading shares?

I much prefer the fact that most platforms allow me to switch OEICs/UTs for free whereas it costs between £6-£15 to switch shares and ITs. I'm willing to accept a 2/3 day delay for free switches!

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Alan Beaney

Feb 08, 2013 at 12:13

Good news however that only solves one of the problems as a centralised dealing platform is also required. I think the latter may be a long time coming given the vested interest involved!

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Pre-funding via mobile

Feb 10, 2013 at 20:45

Sounds very interesting, as there is a cost for dealing shares I'm assuming the crest versions will have reduced TERs to counter the cost of free switching via most trading platforms?

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