Calastone, Barclays Corporate net settlement service may shave bps off TERs

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Fund expenses could drop following the introduction to the UK market of a managed net settlement service by Calastone and Barclays Corporate.

Fund expenses could drop following the introduction to the UK market of a managed net settlement service by Calastone and Barclays Corporate.

The service nets off fund transactions and means funds no longer have to settle on a many-to-many basis, Calastone said, while still complying with industry standards such as ISO15022 and ISO20022 covering messaging standards for providing bank information to clients’ cash management, treasury systems and accounting applications.

Moving to a netting basis should help the funds industry cut costs and reduce liquidity and counterparty risk, when compared to paying gross subscriptions and receiving gross redemptions to multiple parties, Calastone said.

Dan Llewellyn, Calastone managing director of European Business Development, said: “Ultimately the value of the TER (total Expense Ratio) rests with the fund provider, and is driven by specific commercial concerns and other factors, like AUM. But, as more automation becomes available in trading and settlement, not reducing the element of TER that relates to this area becomes increasingly difficult to justify. Whilst a few bps may not seem a great deal, compounded over a 20 year or so time horizon for a long-term investor, it can be of great significance in terms of cost saving.”

Calastone entered the UK mutual funds market in 2007 with an electronic system for routing order messages and real time tracking of trades.

Barclays Corporate’s role is to provide a settlement infrastructure for matched trades on a net basis. This will not require participants to change any existing corporate banking relationships.

Existing Calastone clients have welcomed the move, including Old Mutual Asset Management, Smith & Williamson and Northern Trust, as well as operators in the UK funds distribution space such as Cofunds and FNZ.

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