Euronext’s ETF Settlement Plan Foiled by Regulators
Regulatory bodies in France and the Netherlands have halted Euronext’s controversial initiative that aimed to channel the settlement of over 1,250 exchange-traded funds (ETFs) to its platform.
Earlier this year, Euronext proposed to enhance liquidity by incorporating ETF listings into its stock exchange. However, the plan to designate its own Central Securities Depository (CSD) as the primary clearing venue for ETFs in Paris and Amsterdam faced significant pushback from the industry, raising concerns about potential cost increases. Competitors like Euroclear and market maker Jane Street also voiced their objections.
As a result of this intervention by the Financial Markets Authority and the Financial Authority, Euronext has been compelled to revise its plans.
“The regulator has given its opinion, and we’re making adjustments,” noted Pierre Davouste, the head of Euronext’s depositary, Euronext Securities. He mentioned that regulators are requesting a review of connectivity with Euroclear to ensure traders have various payment options.
“We never meant to favor one CSD over another,” he emphasized. “The aim of this project was always to give customers choices.”
In a statement, Euroclear remarked that, due to the complaints, the AMF and AFM concluded Euronext’s plans were “discriminatory” and not warranted by the risks that could disrupt the stability of financial markets. They stated this was not necessary for ensuring efficient and economical transaction settlements.
While the AMF chose not to comment, the AFM affirmed it couldn’t discuss specific instances but added, “Generally, we seek to ensure fair competition among CSDs. Open access allows exchanges, central trading parties, and CSDs to connect to each other’s infrastructure, which supports this goal.”
This regulatory action was positively received by many industry stakeholders.
“Our members appreciate recent moves that allow them to maintain settlement through the international central securities depository,” said Lara Shevchenko, a market structure expert at the European Association of Main Traders. “This will help ensure the efficiency of settlement in the European ETF market,” she added.
Jim Goldie, Invesco’s emea head of capital markets, ETFs and index strategies, stated that preserving options for depositaries is “a good outcome for investors.”
Euronext’s initiative to consolidate ETF listings, with operations spanning seven European stock exchanges, including Milan, Paris, and Amsterdam, was initially seen positively as it sought to tackle issues of fragmentation and illiquidity affecting ETFs listed on multiple exchanges.
However, many industry observers expressed concern that making Euronext’s securities, where the Milan ETF is settled, the default settlement site for ETFs in Paris and Amsterdam could exacerbate post-trade fragmentation.
Currently, a considerable portion of European ETF transactions is settled through international CSDs managed by Euroclear and Clearstream, allowing for streamlined trade settlements.
One challenge with Euronext’s approach is that many ETFs in France and the Netherlands are also listed on other European exchanges like London, Switzerland, and Zetra, where participants typically settle through the international CSD.
Even for Euronext’s own listings, its settlement plan would apply only to quarterly ETF trades executed on the exchange, while other trades would still be settled through the international CSD.
Moreover, Euronext Securities is limited to euro-denominated ETFs, meaning that traders wanting to switch between dollar and euro stocks will need to process settlements in different locations. Also, it exclusively supports secondary market transactions, as major activities like the creation and redemption of ETF shares will still go through Euroclear.
This fragmentation raised alarms about splitting inventory and increasing costs, which could, in turn, lead to more complex inventory switching and payment failures, thereby affecting market makers.
The potential costs of these penalties could push market makers to widen bid-offer spreads, which would ultimately disadvantage end investors.
This year, Jane Street released research indicating that Euronext’s proposed changes “could complicate timely settlements.” They warned that this might influence ETF spreads as market makers would consider higher operational costs and penalties for delays in their pricing.
Despite the revisions, Euronext plans to retain its depository as the default for Paris- and Amsterdam-listed ETFs starting September 2026, following consultation with regulators. They will also facilitate options for market participants who wish to use alternative depositories.
“Trade members will still have access to Euroclear’s CSD,” Davouste assured. “We aim to promote competition and choice, allowing customers to choose to pay outside Euroclear. Some retailers specifically prefer that.”
