ETF Processing

Welcome to the ETF Processing section of the Learning Center! Through the Exchange Traded Fund (ETF) process, you generate clearance instructions that are validated through Universal Trade Capture (UTC). The ETFs and their underlying securities move through the settlement workflow process for clearing through NSCC. Locate the content that you need by using Search to filter or access Resources to navigate to all of the ETF content.

NSCC's ETF process automates the creation and redemption of ETF securities when the underlying securities are eligible to be cleared through NSCC. NSCC reports, clears, and settles ETFs and their underlying securities through its creation/redemption process. ETF processing includes a nightly distribution of domestic, foreign, and fixed income portfolio information.

You can review the ETF portfolio constituents either on-line or in a data file. The ETF processing service includes a web-based tool displaying the ETF portfolio constituents and relevant cash amounts. Using this application, Members can download data to an Excel spreadsheet. Members can also elect to receive a data file of the same portfolio information. ETF Agents and Authorized Participants can access the Trading Relationship Management, a self-service web-based tool, that enables them to monitor and maintain relationships in connection with these create and redeem transactions.

ETF processing includes a nightly distribution of domestic, foreign, and fixed income portfolio information. Use customized portfolios to create and redeem the ETF within NSCC’s ETF processing.

  • NSCC allows participants to customize portfolios by excluding specific securities and substituting them with cash or with another NSCC eligible security.
  • NSCC can support ETF processing when the underlying security is ineligible at NSCC for ETFs that have been created and redeemed against cash, in lieu of securities.
  • NSCC also clears and settles U.S. listed ETFs that are traded in the domestic secondary market.

About the ETF Process

The ETF process flow:

  • On the day before trade date (T-1), participants receive a Portfolio Composition File (PCF), either through a web-based application or in a data file, listing the securities in each ETF. The data file also identifies the cash amount in each portfolio and other relevant information. Trades eligible for cash creates and redeems show a cash creation amount on the portfolio composition file.
  • On trade date (T), participants can place a create/redeem order through the distributor. The distributor delivers the order to the ETF agent. After receiving, the ETF agent transmits an Instruction file for the creates or redeems to NSCC.
  • night of T, NSCC transmits an Instruction Detail file showing the details of the creates and redeems to participants with activity. The information in the file can also be viewed by Members who subscribe to Universal Trade Capture (UTC) through that service’s data output. This report serves as the contract for the create/redeem activity.
  • Both the components underlying the ETF and the ETF itself are processed through DTCC’s normal equity clearance and settlement systems.
  • Create and redeem transaction fees are reflected separately in the participants End of Day settlement. Cash amounts for the transaction fees are sent directly to money settlement and are settled under a unique NSCC settlement codes. For standard portfolios, it is a code 54; for custom portfolio’s it is a code 55.

Any full service NSCC Member that has entered into an Authorized Participant agreement with an ETF Agent and Distributor/Sponsor to become an Authorized Participant can use NSCC’s ETF processing service. While, in some instances, an ETF sponsor allows a non-clearing firm to become an Authorized Participant, any firm executing a transaction in an ETF through NSCC must either be an NSCC Member or have a clearing relationship with an NSCC Member.

The following types of ETFs are currently available:

ETF Type Description
Index
  • Most common type.
  • Attempts to replicate the performance of a market index, for example, the S&P 500.
  • Daily leveraged or inverse ETFs.
  • Uses replication, representative sampling, aggressive sampling.
Commodity
  • Invests in commodities (precious metals, futures).
  • Not regulated as investment companies under ICA of 1940, but subject to CFTC regulation.
  • Public offering subject to SEC review, and no-action letter needed.
  • Most popular are gold and silver.
Fixed Income Invest in U.S. government, corporate, or municipal bonds (for example, iShares Barclays 20+ year treasury bond fund).
Currency Rydex Investments launched first fund in 2005 known as Currency Shares.
 Activity Managed First launched in 2008 by Power Shares.

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NSCC’s ETF process provides the following efficiencies and risk controls around the creation and redemption of ETFs:

  • Provides Members with the ability to select only the portfolios they need for next day’s trading through a web based on-line view. Through this mechanism, Members can download the portfolio details in an Excel spreadsheet format.
  • Enables Members to elect to receive a nightly Portfolio Composition File (PCF) data file containing information that pertains to the ETF for the following trading day. This information is also available through the ETF web-based tool.
  • Supplies an instruction detail file containing the details for each create and redeem
  • Provides Members with the ability to submit a supplemental portfolio on trade date for standard and custom portfolios.
  • Reduces manual deliveries.
  • Provides clearance and settlement of the ETF, as well as the underlying components, through NSCC's CNS and non-CNS settlement processes. When eligible, settlement of the underlying components of ETFs and certain eligible ETFs through CNS (minus the transaction fee) are guaranteed by NSCC.
  • Allows Members to create or redeem ETFs on T+2 or T+1 (next day) basis.
  • Allows Members to create or redeem a customized portfolio with cash in lieu of securities.
  • Allows Members to create or redeem a portfolio either against cash or through the exchange of securities.

ETF Lifecycle Overview

ETF Lifecycle

Watch this three-minute video for an overview of the ETF lifecycle.

ETF and CNS Processing

  • ETFs trade on an exchange as an equity
  • NSCC’s ETF process automates the creation and redemption of ETF securities
  • NSCC reports, clears and settles ETFs and its underlining securities through its creation/redemption process
  • ETF processing also includes a nightly distribution of domestic, foreign and fixed income portfolio information
  • Participants can customize portfolios by excluding specific securities substituting them with their cash value
  • ETFs can also be created/redeemed against cash (in lieu of securities) when the underlying securities are not NSCC or DTC eligible. For example, Leveraged and Commodity based ETFs that contain futures and swap contracts
  • NSCC also clears and settles ETF trades in the domestic secondary market
  • CNS is an accounting and balancing system that enables continuous net settlements.
  • Each day NSCC identifies trades that were matched through its trade capture and reporting system and stages them for settlement.
  • System generates reports of security, money positions, and related information.
  • CNS provides clearance for equities, corporate bonds, UITs, and municipal bonds that are eligible at DTC.

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Some benefits of CNS include:

  • CNS nets participants security obligations on a daily basis to one net long or short position for each CUSIP.
  • NSCC becomes the contra side of each netted obligation and guarantees its settlement.
  • Each day CNS settles one net position per issue with each contra party - NSCC.

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  • Exemptions that are negative instructions sent to NSCC to indicate short positions are not automatically taken from participants DTC account. Separate exemptions exist for one day settling items.
  • Priorities that are standing instructions set by participants to NSCC to control the delivery of securities of CNS long positions to their DTC accounts. ETF agents are High-High priority for the CNS night cycle and CNS day cycle allocations.
  • Processing Reorganizations
    • Reorganizations – both mandatory and voluntary are processed at NSCC. The typical corporate action on ETFs is a regular or reverse stock split. A new CUSIP is usually assigned to the ETF but the trading symbol does not change. Components can also undergo a corporate action such as a regular or reverse split, cash dividend, spin-off or liquidation.
    • Information about these events is available through a series of reports and notices that show activity under way in various CNS subaccounts.
    • NSCC allows protection on voluntaries when a participant has a long (failing) position with CNS.
  • Processing Dividends
    • Accounting of dividends is based primarily on a participants closing position on the record date.
    • Cash and Stock dividends, spinoffs and other type of distributions are reported to the participant on the morning after record date.
    • On payable date the appropriate debit or credit is applied to the participants CNS Sub account.
  • Processing Buy-Ins
    • Issue an intent buy-in to CNS once a security has failed.
    • CNS retransmits the buy-in to the participant or those that owe shares to CNS.

Web Interface for PCF Reporting

The ETF Processing web interface for Portfolio Composition File (PCF) provides reporting for all Trade Date (T)-1 and supplemental portfolios:

  • All portfolios are reported in the consolidated format; NSCC will reconfigure the portfolios that are submitted in the legacy formats to the new consolidated format.
  • Only the final version of T-1 portfolios is reported.
  • All supplemental versions of a standard portfolio are reported, whereas only the last supplemental version of a custom portfolio is reported.

Users are required to subscribe to standard portfolios they want to receive or download via the PCF Web; the subscription indicator will automatically be turned on for custom portfolio:

  • You can view or download the PCF data only for subscribed portfolios.
  • You can view and download up to five prior business day’s PCF reports for subscribed portfolios

Note: The consolidated PCF output MRO (AutoRoute 02261256/PSE 02981256) contains each participant's subscribed portfolios only.

The Web Interface for PCF Reporting allows you to:

  • Input Portfolio Subscription Inquiry Criteria
  • Sort Portfolio View
  • Subscribe/Unsubscribe to portfolios
  • View Portfolio Details
  • View Supplemental Portfolios
  • View New Portfolios
  • View Prior Business Day Portfolios

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ETF Portfolio Data Services

DTCC is expanding its ETF Portfolio Data Services by providing access to the ETF Historical Portfolio (PCF) MRO File Layout: AutoRoute 02262222 that uses a similar format to the Enhanced Consolidated PCF file. The parameters for the date range, Portfolio Type (US/non-US), Agent, CUSIP, and Trading Symbol are:

  • Date Range: One year increments
    If the request is greater than one year, multiple requests are needed.
  • November 1, 2007 to (Trade Date – 1) (see seven years of data is available.
  • Agent: One or multiple. This is a required field.
  • Provide either the CUSIP or trading symbol, not both.

Access to the ETF Historical PCF is available through one of the following options:

  • DTCC performs a query for the ETF historical data as a one-time feed providing access to all historical data. For more information, contact DTCC Data Sales by completing the form available at http://www.dtcc.com/dtcc-data-sales.
  • Use the ETF Web Portal to obtain access to the historical data as a one-time feed and on-demand access.

Note: Subscribing to on-demand access to historical data provides access to the ETF Web Portal for File Requests Only. (Creates the FTP file without access to the on screen data display).

Other Important Information:

  • You must have CUSIP License to subscribe.
  • At least seven years of data is available.
  • Available for Standard Portfolios Only (not available for Custom Portfolios).

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