Products & Services

Equities Clearance and Settlement

Domestic Index Share Processing

a service offering of National Securities Clearing Corporation (NSCC)

Domestic Index Share Processing facilitates the creation and redemption of Index Shares, also known as Exchange Traded Funds (ETFs), in an automated process.

Overview

Domestic Index Share Processing facilitates the creation and redemption of Index Shares, also known as Exchange Traded Funds (ETFs), in an automated process. NSCC reports on, settles and clears ETFs and their underlying securities through the creation/redemption process, which is initiated by a participant. Domestic Index Share Processing includes the dissemination of Fixed Income Index Share Portfolios, but the creation and redemption process is facilitated outside of NSCC.

NSCC also processes Foreign Index Share Processing, but is only an information dissemination facility for foreign ETFs. NSCC does not provide creation and redemption processing for foreign index shares, since the underlying securities are not cleared and settled at the clearing corporation. However, NSCC does clear and settle the ETF shares for foreign index shares just like any other domestic equity security.

Who Can Use the Service

Any qualified and interested NSCC member who has entered into an appropriate agreement with the Index Receipt Agent (the term NSCC uses to describe the Transfer Agent / Custodian's role) and Distributor is eligible to participate in this service. The member must be able to settle through NSCC.

Benefits

Domestic Index Share Processing through NSCC provides efficiencies and risk controls including:

Providing a Daily Portfolio Composition listing to each participating member the day before the creation/redemption process.
Providing Instruction Detail files.
Using a fully automated process to reduce manual deliveries.
Providing clearance and settlement of the Index Receipts, as well as the underlying stock components, through NSCC's CNS and Non-CNS settlement systems.
Applying all the other benefits of CNS, including the NSCC central counterparty role, to the creation/redemption process. (See the Continuous Net Settlement [CNS] fact sheet for further information on those benefits.)

How the Service Works

On T-1, all authorized participants receive a Portfolio Composition report/file that lists the composition of all the various ETFs. The file displays the proportionate amount of underlying stocks that comprise each Fund. This file also contains a cash component, which is an estimation of accrued dividends and any necessary balancing amount. The portfolio information contained in this file is used for the next day's (called Trade Date, or T) creation/redemption processing.
On Trade Date, the participant places a creation/redemption order through the Fund Distributor. After receiving the order from the Distributor, the Index Receipt Agent transmits an Instruction File to NSCC.
On the night of T, NSCC transmits an Index Receipt Instruction Detail File to participants who had activity on T. The report serves as the contract for the creation/redemption activity and lists the number of component shares and depository shares that the participant will deliver to or receive from CNS on T+3.
On the night of Trade Date, each Index Share Instruction is burst into its underlying stock components, and these components are processed through CNS and are incorporated into the normal equity clearance and settlement process.

For More Information:

Please call Relationship Management at 1 888.382.2721.

This description is for informational purposes only. This Service is governed by applicable Rules, Procedures, and Service Guides for each DTCC subsidiary, which contain the full terms, conditions, and limitations applicable to this Service.