Exchange Traded Products...02–03 Exchange Traded Products / Simple products. Sophisticated...
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Simple products. Sophisticated strategies. Exchange Traded Products
Transcript of Exchange Traded Products...02–03 Exchange Traded Products / Simple products. Sophisticated...
Simple products. Sophisticated strategies.
Exchange Traded Products
Exchange Traded Products / Simple products. Sophisticated strategies.
Contents
1 Introduction 02
1.1 What are ETPs? 02
1.2 Introduction to the admission process in the UK 02
2 Overview of introducing ETPs into the UK 03
3 London Stock Exchange 04
3.1 Product admission 04
3.2 Multi-currency lines 04
3.3 Issuer fees 04
3.4 Market Maker registration 05
3.5 Exchange membership 05
3.6 Trading environment for ETPs 05
4 Settlement 06
4.1 CREST 06
Prospectus approval and listing (article) 08
02–03 Exchange Traded Products / Simple products. Sophisticated strategies.
The Exchange is committed to developing the market for Exchange Traded Products. We were the first to introduce a dedicated ETC segment in September 2006 in order to build on the success of the Exchange Traded Gold product, which was first traded on the Exchange in 2004. This was followed by the development of multi-currency ETC trading in October 2007.
Since then there had been steady growth in the number of ETPs listed on London Stock Exchange, creating the leading European centre for ETPs, with products ranging from short, long and leveraged positions.
London Stock Exchange is committed to innovation and further developing its offerings to its clients in the ETPs space and encourages potential issuers to discuss their plans from the start of the project.
For further information please contact London Stock Exchange ETP team on +44 20 7797 3054.
This brochure provides a guide to the steps that are required for launching ETPs, including exchange traded commodities/currencies (ETCs) and exchange traded notes (ETNs) in the UK.
1.1 What are ETPs?ETPs such as ETCs and ETNs are structured as debt securities but unlike conventional bonds these instruments pay no interest and are not rated. ETPs can give investors a means of diversifying investment portfolios without the need to:
— enter into swap agreements or forward contracts,
— take physical delivery of the underlying commodity, or
— hold securities which constitute the underlying index.
As the ETP market has developed, it has expanded beyond the original commodity instruments (ETCs), and now includes notes (ETNs) and currencies (Currency ETCs). It is important to note that ETPs are different to ETFs in a number of ways. ETPs such as ETCs and ETNs are not funds and therefore lie outside of the remit of UCITS – the Undertakings for Collective Investments in Transferable Securities.
For a full list of ETPs available on London Stock Exchange please visit ETF & ETP list with categorisation.
1 Introduction
Simple products. Sophisticated strategies.
ETPs ETFs
Type of security
Notes linked to the performance of commodities, indices, currencies and volatility
Open-ended index tracking funds
UCITS Non-UCITS compliant UCITS compliant
Collateral No regulatory collateral requirements – some ETPs are fully collateralised and some are unsecured
UCITS collateral requirements
1.2 Introduction to the admission process in the UKThe admission process in the UK is made up of two stages: listing and admission to trading. Listing is the process of admission to the Official List, which is controlled by the UK Listing Authority (UKLA), a division of the Financial Conduct Authority (FCA). The FCA retains responsibility for the approval of the prospectus in respect of the ETPs. London Stock Exchange is responsible for admitting securities to trading on the Main Market. In addition an ETP issuer seeking a London listing for its securities must apply for admission to the Official List (a ‘listing’) through the UKLA. The listing is dependent on the securities gaining admission to trading on the Main Market through satisfying the Exchange’s Admission and Disclosure Standards.
FCA approves prospectus and UKLA
admits securities to the Official List “LISTING”
London Stock Exchange issues a single dealing notice to the market
London Stock Exchange admits
securities to trading on Main Market
2 Overview of introducing ETPs into the UK
02–03 Exchange Traded Products / Simple products. Sophisticated strategies.
Listing an ETP, which is structured as a debt security, is a two-stage process. In the first instance, the UKLA admits debt securities to its Official List after approving the prospectus or the listing particulars. Then application for admission to trading is made to the Exchange.
The UKLA follows a clear schedule when approving a prospectus or listing particulars for debt securities, under which first comments will be provided within 5 clear days for most issues. Every application for the listing of debt securities in London will be allocated a dedicated reader, which enables continual information sharing and easy
ETCs and ETNs should be admitted to the Official List by UKLA access to the UKLA. Please liaise directly with FCA for this
process by contacting [email protected] or +44 (0)20 7066 8352.
Admission to trading – the process of admitting securities for trading by the Exchange once they are admitted to the Official List by the UKLA takes no longer than 5 working days.
Once the securities are admitted to trading, the issuer must observe certain ongoing obligations to satisfy the Exchange’s Admission and Disclosure Standards.
We work closely with the UK Listing Authority (UKLA) and key advisers to ensure a timely and cost effective listing process that will best suit issuers’ needs.
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3 London Stock Exchange
ETPs can be traded in GBP/GBX, EUR and USD
3.1 Product admissionThe application for admission to the Exchange can be administered by the product’s sponsor or directly by the issuer. As soon as possible in the admission process (i.e. once it has been determined what products are to admit) it is necessary to arrange for the creation of the relevant trading code identifiers.
ISIN/SEDOLISINs are normally allocated by the country of domicile of the issuer. The Exchange is then responsible for allocating a SEDOL code which is a unique instrument identifier. Please email the Pricing Supplement(s) to [email protected] and allow 48 hours for these to be assigned.
TIDMA Tradable Instrument Display Mnemonic (TIDM) is the three or four character identifier specific to London Stock Exchange. Issuers may request a specific TIDM which will be issued provided it is not already in use or reserved. Once reserved, these are held for a period of six months. Requests should be made to the Admissions team, who manage new admissions to London Stock Exchange. Please email the issuer name and the description of each line (multi-currency lines require unique TIDMs), making it clear that it is a TIDM request to:
[email protected] Telephone +44 (0)20 7797 4513 Fax +44 (0)20 7920 4607
London Stock Exchange reserves the right to reject or withdraw a TIDM, at its sole discretion, at any time.
Admission documentationFor ETPs admitting on the basis of a UKLA listing, the below documents must be submitted to the Admissions team 5 business days (by 12.00pm) before the target admission date:
— Form 1
— Trading form
— Prospectus/pricing supplement
— Final terms
3.2 Multi-currency linesIt is possible to trade an ETP in Sterling (GBP and GBX), Euros and US dollars through the SETS trading service. The same ETP may be traded in all trading service specific currencies, utilising multiple segments for multiple currency lines within that trading service. Multiple currency lines require unique TIDMs and SEDOL codes, however the ISIN of the multi-currency line will be identical to that of the original line within the trading service.
Multiple currency lines can be applied with the original application, or at a later date. If applying for multi-currency lines at a later date, we require the same documentation to the same timetables as above, with the exception of the prospectus/pricing supplements (these are not required). Each line is required to have a registered Market Maker to support pricing. See list of Market Makers at www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/exchange-traded-funds/market-makers
Any forms and other listing documentation for ETPs can be found at www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/exchange-traded-funds/listing-and-admissions
Please submit this documentation to the Admissions team at the Exchange as above.
3.3 Issuer feesAdmission fees and annual fees are payable by issuers on each individual ETP admitted to trading on London Stock Exchange’s Main Market, excluding multi-currency lines. Full details can be found in the Fees for Issuers document which is available at www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/exchange-traded-funds/listing-and-admissions
Market Makers are required to maintain quotes until completion of the closing auction to ensure that an appropriate closing price is set.
3.4 Market Maker registrationFor a Market Maker to register in the security they must complete and send in a Registration Information Form (RIF) before 5.30pm the day prior to listing, although we strongly suggest this is sent in earlier if possible to account for any corrections to the form that may be needed. RIF available at www.lseg.com/sites/default/files/content/documents/registration-information-form.xls
Completed forms should be submitted to:
[email protected] Fax +44 (0)20 7920 4526
3.5 Exchange membershipThe ETP issuers are not obliged to be members of London Stock Exchange. Membership of London Stock Exchange would allow access to all Exchange markets, not just ETPs. If prospective market intermediaries want to become a member, they should:
— have an initial meeting with the Exchange’s Membership team to discuss their prospective requirements
— complete an application form and submit to the Exchange together with associated documentation
— work with the Membership team to ensure appropriate trading and settlement links.
An application form for membership is available on the London Stock Exchange website at www.lseg.com/areas- expertise/our-markets/markets-membership/london-stock-exchange-become-member
Market participants acting as Exchange Market Makers, trading, creating and redeeming ETP shares would have to be members of London Stock Exchange.
3.6 Trading environment for ETPsThe market for ETPs operates in an order-driven environment on SETS with integrated Market Maker liquidity provision, delivering guaranteed two-way prices. Market Makers must provide continuous bid-offer orders throughout the trading day in a minimum size and maximum spread regime. It is the responsibility of the issuer to arrange at least one registered Market Maker per security, however to ensure competitive pricing and protection from any individual member firm’s system issues it is advised that issuers should look to engage at least two Market Makers to register in each ETP.
The order book provides continuous execution from after the open auction (which takes place from 7.50am to 8.00am) until the start of the closing auction at 4.30pm on all London business days. Participants are able to use a range of order types, including limit and market orders. The closing auction runs from 4.30pm until at least 4.35pm and allows users to participate and trade at the single closing price, generated at the level that would provide the greatest uncrossing volume. The exact uncrossing time is dependent on random end times and price monitoring periods. Market Makers are required to maintain quotes until the completion of the closing auction to ensure that an appropriate closing price is set. This includes the random end period and any price monitoring extensions. The latest possible time of uncrossing is 4.49pm. If no closing auction occurs the closing price will be the mid price of the best bid/offer at the end of the closing auction. The following link provides details of Market Maker obligations for ETPs on London Stock Exchange: www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/exchange- traded-funds/listing-and-admissions
Real-time market surveillance is provided throughout the trading day. ETPs are treated as ordinary equity in the Exchange rulebook, except with regard to the creation and redemption of ETP shares.
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In order to trade ETPs on the SETS trading system of the London Stock Exchange, they must be able to settle through the CREST system. The ETP issue must allow for dematerialised settlement, but this does not mean that the ETP issue must be exclusively dematerialised.
4.1 CRESTAdmitting shares into the CREST system (“CREST”)The issuer, will have to notify Euroclear UK & Ireland for the securities to be admitted to CREST. CREST members are the direct legal owners of the securities. Under the laws of the UK, Ireland, Jersey, Guernsey and Isle of Man, the legal ownership of dematerialised securities is evidenced by the entries in the register, which is maintained by Euroclear UK & Ireland (for UK securities), or by the issuing company or its registrar (for Irish, Jersey, Guernsey and Isle of Man securities).
4 Settlement
Settling non-UK and non-Irish registered ETP shares in CRESTNon-domestic Exchange Traded Products (i.e. those not constituted under the laws of England & Wales, Scotland, Ireland, Isle of Man, Jersey or Guernsey) can be settled in CREST, providing a Euroclear entity, acting as a depository in respect of the non-domestic ETP, issues dematerialised depository interests (CDIs) representing such ETP. As securities constituted under English law but which represent an interest in other securities (which may be securities constituted under the laws of other countries) may be issued into, held and transferred in the CREST system. Euroclear UK & Ireland, through one of its CREST Depositories, can hold the ETP shares on the investor’s behalf, via an ICSD link. Creating CDIs is only possible if Euroclear UK & Ireland has link arrangements with an ICSD which in turn is linked with the domestic settlement house of the product.
Access to CRESTThe issuers are not obliged to become members of CREST. The depositary, acting for the issuers as holder of the assets, would have to be a member. It is likely that the trades of the ETPs would be settled through the depository’s CREST account. This applies equally to creation and redemption as well as secondary market trades that arise from rebalancing the portfolio. Should the issuer or its associated parties want access to CREST, a sponsored member, utilising the service of a CREST Sponsor, can mitigate the need for the party to maintain extensive connection networks.
Becoming a CREST memberIf the issuer or any associated party would like to become a direct member of CREST, more information can be found at www.euroclear.com/en/about/Our-clients/becoming-a-client/EUI.html
Settlement in the secondary marketThe settlement cycle for ETPs is T+2, with LCH as the Central Counterparty for all on book executions. By clearing through LCH, LSE clearing members benefit from counterparty risk management, settlement netting, straight through processing and counterparty anonymity. LCH’s direct connection to the central securities depositary (CSD) means the customer benefits from the lowest settlement costs and therefore the most efficient corporate event processing is offered.
UK and Ireland
Creating ETP share CDIs in CREST
Country of product registration
CREST Domestic CSD
It is advisable that settlement issues, especially creating CDIs, are discussed further with Euroclear UK & Ireland as there are specific issues relating to investment funds.
All ETPs on LSE SETS trading system are settled through CREST
MarketMember accounts
ETP shares Product
CDIs of ETP shares
Shares in name of CREST Co
The complete service
Ranked Tier 1 for Derivatives and Structured Products Legal 500 UK 2017
Simmons & Simmons is a market leader in structured finance and derivative products. We pride
ourselves on our expertise in developing innovative approaches to traditional financial products,
based on 20 years experience as a major player in this field. We work with many of the most
active and innovative investment banks and have a reputation for swift, efficient and cost-
effective execution in a diverse range of developed and emerging market jurisdictions.
For further information, please contact:
Paul BrownePartnerT +44 20 7825 3946E [email protected]
simmons-simmons.comelexica.com@SimmonsLLP
Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is regulated by the Solicitors Regulation Authority.
The complete service
Ranked Tier 1 for Derivatives and Structured Products Legal 500 UK 2017
Simmons & Simmons is a market leader in structured finance and derivative products. We pride
ourselves on our expertise in developing innovative approaches to traditional financial products,
based on 20 years experience as a major player in this field. We work with many of the most
active and innovative investment banks and have a reputation for swift, efficient and cost-
effective execution in a diverse range of developed and emerging market jurisdictions.
For further information, please contact:
Paul BrownePartnerT +44 20 7825 3946E [email protected]
simmons-simmons.comelexica.com@SimmonsLLP
Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is regulated by the Solicitors Regulation Authority.
08–09 Exchange Traded Products / Simple products. Sophisticated strategies.
Prospectus approval and listing
Article contributed by Simmons & Simmons
Prospectus review processDocuments are submitted to the UKLA for review via its Electronic Submission System known as “ESS”. To make the first submission, the following documents should be submitted via ESS:
— Draft Prospectus: the draft prospectus should be substantially complete so that the UKLA can meaningfully review the prospectus;
— Prospectus Rules Checklists: these detail the minimum disclosure requirements and demonstrate how such requirements are addressed in the prospectus;
— EU Sanctions Letter: this is a signed declaration confirming that the issuer is not subject to certain sanctions; and
— Supporting Documents: this includes certain UKLA forms and any documents which are incorporated by reference in to the prospectus (such as financial statements of the issuer).
After the submission has been received, the prospectus is allocated a unique case reference number and a dedicated reader. Shortly after the first submission is made, the UKLA will advise as regards the applicable prospectus review fee, which should be paid to the UKLA promptly.
Where a new ETP programme is being launched, typically the reader will advise as to the likely timescales for return of comments. The UKLA aims to return comments on new applications in five clear working days This period may be extended. The UKLA will however keep the submitter of the prospectus informed and the reader will be available to discuss timing.
The UKLA will return its comments on the prospectus via the ESS. Comments should be reviewed and amendments made to the prospectus to address the UKLA’s comments as appropriate. Once the prospectus is ready to be re-submitted to the UKLA for further review, it should be re-submitted (in clean and blackline form showing the changes made to
the prospectus since it was last reviewed by the UKLA) via the ESS, together with responses to the UKLA’s comments. The review and re-submission process is repeated until the UKLA confirms that it has no further comments on the prospectus.
Issuer eligibility review processIn parallel with the UKLA’s review of the prospectus, where the issuer of the ETPs does not have any securities already admitted to the Official List of the FCA, an eligibility review application must also be made to the UKLA. The purpose of the eligibility review is to enable UKLA to determine whether the ETPs are eligible for listing under the FCA’s Listing Rules. A completed Listing Rule Checklist should be submitted to the UKLA via the ESS. The Listing Rule Checklist should be completed to demonstrate to the UKLA how the relevant admission criteria are met.
As part of the eligibility review procedure, the UKLA will carry out background research as regards the issuer and its directors. The UKLA may also discuss the application with colleagues in other parts of the FCA with specialist product or market knowledge.
Approval of prospectusOnce the content of the prospectus has been agreed and the UKLA has confirmed its intention to grant issuer eligibility, a date should be agreed with the reader at the UKLA to approve the prospectus. A listing hearing should also be booked via email with the FCA’s Listing Applications team and the applicable documents sent to the Listing Applications team. In addition, the London Stock Exchange should also be contacted to agree the timetable for the admission to trading. There are various timing requirements which must be observed therefore it is always preferable to give all parties as much notice as possible of the intended prospectus approval date. u
Where ETPs are admitted to trading on London Stock Exchange, a prospectus is required. The prospectus must meet the disclosure requirements of the EU Prospectus Directive and Prospectus Regulation. In the UK the competent authority for the approval of prospectuses is the FCA through its UK Listing Authority division known as the “UKLA”. In addition where the issuer of the ETPs does not already have securities admitted to the Official List of the FCA, the issuer must complete the FCA’s eligibility review process. The prospectus review process and issuer eligibility review process run in parallel.
At approval, the final prospectus is submitted to the UKLA via the ESS (together with various supporting documents). The UKLA will approve the prospectus and issue a “Written Notice” as confirmation. Once the Written Notice has been received, the Listing Applications team should be notified in order that the Listing Hearing can proceed. The London Stock Exchange should also be notified so that the admission to trading process can commence.
Please liaise directly with the FCA as regards the prospectus review process, issuer eligibility review process and prospectus approval process.
UKLA general administrative queries+44 (0)20 7066 8348
Listing applications+44 (0)20 7066 8352
Simmons & Simmons is a leading international law firm with fully integrated teams working through offices in Europe, the Middle East and Asia, bringing experienced professionals to some of the most active growth markets today. Our focus on a small number of sectors means we are able to understand and respond to our clients’ needs. Our industry sectors are: Asset Management & Investment Funds, Financial Institutions, Life Sciences and Telecoms, Media & Technology (TMT). We also focus on the E&I market, in particular through our international projects and construction teams. We have a track record for innovation and delivering value to clients through new ways of working.
For additional information on our firm, please visit our website at www.simmons-simmons.com
08–09
Further informationFor further information regarding ETPs, contact [email protected] or visit www.lseg.com/etps
The information contained in this publication and any other publications referred to herein are for guidance purposes only. London Stock Exchange has taken reasonable efforts to ensure that the information contained in this publication is correct at the time of going to press and this publication may be updated at any time, but is provided on a “as is” basis and London Stock Exchange does not make any representations and disclaims to the extent permitted by law all express, implied and statutory warranties of any kind in relation to any information provided in this publication, including warranties as to accuracy, timeliness, completeness, performance or fitness for a particular purpose. Accordingly, London Stock Exchange accepts no liability for the results of any action taken or omitted, in reliance upon information provided in this publication. The information is this publication is not a promotion of any investment activity and is not offered as advice on any particular matter. Information in this publication is in no way intended, directly or indirectly as an attempt to market or offer to buy or sell, or a solicitation of an offer to sell, any type of financial instrument, by any person in any jurisdiction in which such an offer or solicitation is not authorised, or in which the person making such an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such an offer or solicitation. Advice from a suitably qualified professional should always be sought in relation to any particular matter or circumstances. The London Stock Exchange crest and logo, RNS and SETS are registered trade marks of London Stock Exchange plc. No part of these trade marks, or any other trade mark owned by London Stock Exchange Group can be used, reproduced or transmitted in any form without express written consent by the owner of the trademark.
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