New swap-based ETFs provide exposure to India and Russia

An ETF issuer iShares sets new standard for ETF transparency with launch of swap-based product platform..…

iShares, the Exchange Traded Funds (ETF) platform of BlackRock, Inc. (NYSE: BLK) today announces an evolution in the ETF industry as it launches a unique swap-based ETF platform to deliver a range of swap-based ETFs which offer multiple swap counterparties, are over collateralised and provide investors with full transparency regarding collateral holdings, swap costs and fund exposures. This development is in response to the rapidly growing appetite for exposure to difficult to access markets, combined with a desire for transparency, disclosure and minimised counterparty risk.

iShares will primarily focus on creating swap-based funds where the exposure cannot be efficiently constructed in accordance with existing UCITS III rules using a physical-based approach. The first products to roll off the platform and list on the London Stock Exchange today include the iShares MSCI Russia Capped Swap ETF which tracks the MSCI Russia Capped Index and the iShares S&P CNX Nifty India Swap ETF which tracks the S&P CNX Nifty India Index.

To facilitate the Russia and India funds, there will be three counterparties including RBS, UBS and Credit Suisse. iShares believes the risk management benefits and competitive swap pricing created by having multiple swap providers is of paramount importance to investors.

Commenting, Axel Lomholt, head of product development, iShares EMEA, said:
“This initiative is an important expansion of the iShares product set and reinforces our position as the market leader in one of the fastest growing areas of fund management. iShares remains committed to its physically-backed ETF structure offering, which we believe continues to be the most effective and efficient way for investors to access mainstream asset classes, and will always be our first option when launching products.

“We are delighted to have RBS, UBS and Credit Suisse act as swap counterparties to the new funds and plan to add further counterparties over time.”

iShares’ unique approach will deliver access to markets and asset classes via swaps which can be difficult to otherwise access due to operational or liquidity constraints, whilst maintaining a commitment to transparency, quality of service and risk management. The main benefits of the new platform include:

– Multiple swap counterparties and multi-dealer primary and secondary market models, which ensure best execution for the client.
– Quality, liquid collateral and over collateralisation, which protects investors from counterparty default risk at all times. In this context, “over collateralisation” means that the aggregate market value of collateral taken will exceed the overall counterparty exposure.
– The ability to see daily collateral and index holdings, swap spreads and aggregate swap exposure on the iShares website, which ensures these funds retain the same market leading level of transparency as iShares’ physical-based ETFs.

Lomholt continued: “Counterparty risk and transparency have been the driving concerns for investors using swap-based ETF structures. Considering this, iShares has engineered an enhanced platform following a unique model which, coupled with an over collateralised and highly transparent fund structure, helps to significantly minimise counterparty risk for investors.

“BlackRock takes its responsibility as the world’s largest fiduciary, investment and risk manager very seriously, and believes in providing the highest levels of transparency to its clients. Both regulators and product providers are working towards a mutual goal – increased transparency of products, models and methodologies – to satisfy investor demand fortransparent financial instruments.”