The European ETF market is under rapid growth since 2005 in terms of assets under management as well as the number of new launched funds. CACEIS offers a comprehensive range of services dedicated to those products.
 

Exchange Traded Funds (ETFs), also called trackers, are index funds that are quoted on the stock market. Their primary goal is to reach a performance that is as close as possible to their benchmark index. The volumes that appear on the stock markets, however, only show a part of the volumes effectively traded in Europe, the majority of transactions being carried out over the counter. Created at the beginning of the 1990s in the United States, ETFs have only appeared in Europe in the year 2000.
In the same way the burst of the speculative bubble allowed the development of this activity in the United States between 2000 and 2003, the current crisis seems to favour the success of ETFs in Europe.
 

PRODUCT PROVIDING SEVERAL ADVANTAGES
The current stock market situation makes ETFs more and more attractive for investors. Indeed, within an environment where investors primarily want transparency, ETFs undeniably benefit from their simplicity, liquidity and transparency, and even from their price. Furthermore, these products are now an integral part of the management strategies of many management companies, in direct competition with other index solution such as futures and swaps. Thus, ETFs inflows has continued to increase during the year 2008 in Europe despite bear market conditions and high outflows of UCITS funds.

INNOVATIVE ETFS IN ORDER TO BETTER MEET THE EXPECTATIONS OF THE INVESTORS
Two methods coexist in Europe for the conception of the ETFs: physical replication and synthetic replication; the first one comes from the United States and the asset management environment while the second one comes from Europe and the investment banking world:
> Physical replication consists in the integral replication of the benchmark index: the portfolio is thus composed of all securities making up the index. Securities lending operations can offer an additional source of revenue. This method requires a solid infrastructure and an important management capacity.
> Synthetic replication consists in the use of a performance swap, a contract with an investment bank, to duplicate the performance of the benchmark index. In this case, the portfolio can be composed of a securities basket which is different from those composing the reference index, in order to allow the eligibility of the ETFs to a UCITS III status for instance or to the PEA in France. Thus, an ETF dedicated to a Japanese index can be integrated to a PEA if its assets are composed of at least 75% European securities, the swap enabling the reproduction of the performance of the Japanese index. This method also avoids the costs inherent to the management of a very large portfolio of physical assets and enables a tracking error rate (discrepancy compared to the index) close to zero. This, however, introduces a counterparty risk for a part of the portfolio.
Furthermore, ETFs have a large array of investment supports and asset classes. In addition to the standard ETFs replicating market indexes, more and more strategic or thematic ETFs appear in Europe.
 

A SERVICE OFFER ADAPTED TO THE DIFFERENT ETF TYPES
CACEIS provides a comprehensive service range to management companies issuing physical or synthetic replication ETFs, in order to facilitate the treatment of the different flows (subscription via transferred assets, asset transactions, Corporate Actions and dividend management, etc.) and to reduce the performance discrepancy compared to the index:
> Fund issuing and centralisation of the subscription/redemption orders: CACEIS intervenes in the creation/destruction of units on the primary market in direct link with the issuer and the market makers as well as on the treatment of the collection, whether in kind (asset transfer) or in cash;
> Middle-office trade management service providing: treatment of the post-execution asset transactions, broker matching and routing to the depositaries and fund administrators;
> Administration and valuation of the performance swaps; with notably the management of the flows to pay to/collect from the counterparties;
> Administration of the securities lending: instruction management, Corporate Actions, collateral, margin calls and interests;
> Custody account management: custody of the portfolio held assets, position keeping and depositary statement, settlement of the operations initiated by the asset managers in France and in foreign countries, treatment of the Corporate Actions and dividends, tax refund, vote at the general meetings;
> Depositary control with notably an ex-post control of the tracking error;
> Valuation and account administration: the daily NAV calculation for the quoted ETFs is quickly carried out following the closing of the market place, in order to enable a rapid production in due compliance of the cut-offs of the funds. Additionally, CACEIS is thus able to inform the asset manager about the follow-up of the daily performance of the ETFs compared with its benchmark;
> Foreign distribution support: registration and post-registration services. CACEIS has a great expertise in terms of international, tax, statistical and financial reporting.
 

CACEIS notably provides these services for the ETF range of CASAM. This subsidiary of the Crédit Agricole Group specialised in structured management currently operates about thirty ETFs and carries out an ambitious plan with the objective to launch a range of 10 new products every 3 months since September 2008, in order to reach 10 billion Euros in assets under management by the year 2011.