French and Dutch regulators have stymied a controversial plan by stock exchange group Euronext that could have driven the settlement of more than 1,250 exchange traded funds to its own platform.
Euronext unveiled plans earlier this year to consolidate ETF listings on its bourses as a way of improving liquidity. But a related plan that could have made its own central securities depository (CSD) the default settlement venue for Paris and Amsterdam-listed funds triggered an industry backlash over fears of higher costs. Rival Euroclear and market maker Jane Street were among those critical of the plan.
However, intervention by regulators the Autorité des Marchés Financiers and the Autoriteit Financiële Markten has pushed Euronext to change its plans.
“The regulators took a view and we are now adjusting that,” said Pierre Davoust, head of Euronext’s depository Euronext Securities. He added that regulators “have asked us to review” the connectivity between it and Euroclear — a move that maintains a choice of settlement venue for traders.
“We never intended to discriminate against any CSD,” he said. “The purpose of the project was never to deny customers the choice. It was to give them choice.”
Euroclear said in a statement that, as a result of complaints it had made, the AMF and the AFM judged Euronext’s plans to be “discriminatory . . . not justified by a risk which may affect the smooth and orderly functioning of the financial markets . . .[and] not justified by the necessity to ensure the efficient and economic settlement of the transactions”.
The AMF declined to comment. The AFM said it could not comment on specific cases, but added: “In general, the AFM aims to ensure fair competition between CSDs. Open access, where market participants such as exchanges, central counterparties and CSDs grant access to each other’s infrastructures, contributes to this goal.”
The intervention by regulators has been greeted positively by many in the industry.
“Our members welcome recent developments that will grant them the flexibility to continue to settle through the ICSD [international central securities depository],” said Lara Shevchenko, markets structure expert at the European Principal Traders Association, an industry body representing 20 market makers.
“This will ensure current levels of settlement efficiency in European ETF markets are maintained,” she added.
Jim Goldie, Emea head of capital markets, ETFs and indexed strategies at Invesco, said keeping a choice of depositories “is a good outcome for investors”.
The plan by Euronext — which operates seven stock exchanges across Europe, including Milan, Paris and Amsterdam — to consolidate ETF listings was broadly welcomed by the industry, as it was seen to be tackling the fragmentation and illiquidity that often stems from a single ETF being listed on several exchanges.
But many in the sector had feared the related proposal to make Euronext Securities, where its Milan ETFs are already settled, the default settlement venue for ETFs listed in Paris and Amsterdam would mean a rise in post-trade fragmentation.
At present, most European ETF trades are settled on international CSDs operated by Euroclear and Clearstream, which has the effect of unifying trade settlement.
One issue with the Euronext plan was the fact that many of the ETFs listed in France and the Netherlands are also cross-listed on other European bourses, such as the London, Swiss and Xetra exchanges, where market participants settle through ICSDs.
Even for Euronext’s own listings, its settlement plans would have only applied to the quarter of ETF trading conducted on exchange, with other trades still settled via ICSDs.
Moreover, Euronext Securities only supports euro-denominated ETFs, meaning a trader wanting to switch between dollar and euro share classes would need to settle in two different locations. It also only covers secondary market trades, with primary market activity — the creation and redemption of ETF shares — still settled via Euroclear.
The fear was that this fragmentation would have split inventories, meaning more switching of stocks between venues would be necessary. This would have raised costs and increased the risk of settlement “fails”, which market makers would be penalised for.
The cost of paying these penalties would likely be recouped by market makers quoting wider bid-offer spreads, which would disadvantage end investors.
Jane Street put out research earlier this year saying that Euronext’s proposed changes may “make timely settlement more operationally challenging”.
It added: “This could have a knock-on effect on spreads in ETFs as market makers incorporate potentially higher operational costs and penalties from late settlement into their prices.”
As a result of Euronext’s changes to its plans following discussions with the regulator, it will still name its own depository as the default for Paris and Amsterdam-listed ETFs from September 2026, but will make it easier for market participants to opt out and use an alternative venue.
“Trading members will be able to continue using the Euroclear CSD,” said Euronext’s Davoust. “We want to provide competition and choice and give our clients the option to settle outside of Euroclear. There are retail brokers who would prefer that.”
