iShares to settle through EuroClear instead of Crest leaving UK shareholders with CDIs

bargainhunter888

i got the below from HL

Thank you for your patience regarding your query into Irish Domiciled ETFs.

My colleague has looked into the required migration of Irish corporate securities from Euroclear UK & Ireland to Euroclear Bank, and as we understand it, the ETF's will likely become CDI's. If this is the case HL should not have any issues in trading them as per other overseas stocks we have on the platform. There are no actions you are required to take currently but we can reassure you that HL expect to be able to trade Irish domiciled ETF's following the migration.

I hope this has been of assistance to you. If you have any other questions, please get back to me.

2nd Email response asking about FX rate if it applies?


Unfortunately I would not be able to confirm whether it will still trade in GBP or not. That information is not available at present but if they change to an overseas currency then the holding will be subject to a foreign exchange charge.

When dealing in overseas shares denominated in foreign currency, your deals will be placed at the overseas market price and converted into sterling by a UK based market maker in line with our sterling settlement requirements.

Please see below the explicit tiered foreign exchange (FX) charge will be applied to the deal as follows:

Deal value FX Charge
First £5,000 1.00%
Next £5,000 0.75%
Next £10,000 0.50%
Value Over £20,000 0.25%

The charge applies to the different tiers within each deal, rather than the total value. For example, on consideration of £10,000 you’ll pay a separate FX charge of 1% on the first £5,000 and 0.75% on the next £5,000, totalling £50 + £37.50 = £87.50.

The explicit FX charge will be displayed pre-trade along with the quote for your deal.

Post trade the FX charge will be separately shown in the trade confirmation and in your contract note.

When receiving client deposits, transfers of foreign currency balances, dividends or monies which relate to a corporate action denominated in foreign currency, we'll convert the currency to pounds sterling at the prevailing exchange rate and will apply a flat charge of 1% to the conversion.

When dividends of overseas stocks are reinvested, no FX charge is applied to the reinvestment (other than the 1% charge applied when the dividend received was converted into pounds when the dividend monies were credited to your account).

If you have any other questions, please get back to me.

what are peoples thoughts on this? surely there are other MSCI world trackers that would be in same situation, am i making mountains out of mole hills here and i dont need to be worried about this and just carry on investing as normal?

Sailtheworld

Last Friday I sold an Irish Domiciled FTSE All Share tracker. They use Euroclear Bank settlement. I got a live price hit the sell button and the cash was available immediately. Today I put the proceeds into VWRL (Irish domicile / Euroclear bank); again, live price, hit the buy button and no issues.

Until this thread I'd never really known what crest or Euroclear were and I'd certainly never looked at how trades were settled before. 

Maybe I'm not looking hard enough but I can't see the issue.

masonic

bargainhunter888 said:

what are peoples thoughts on this? surely there are other MSCI world trackers that would be in same situation, am i making mountains out of mole hills here and i dont need to be worried about this and just carry on investing as normal?

If the trading currency of one of my holdings was to be changed, I'd consider switching for a different financial instrument priced in GBP before that change came into effect. But there are existing CDIs priced in GBP, so I see no reason to think this would happen.

[Deleted User]

After reading this thread I googled like mad - found this and it put me at ease https://the-international-investor.com/investment-faq/crest-depository-interest-cdi

EdGasketTheSecond

I am not sure why it puts your mind at rest unless you like higher dealing charges:

"It’s also worth being aware that since CDIs of a foreign stock will usually be traded through a UK market maker, the price that the market maker quotes will not be the same as is available on the overseas exchange, since they need to earn a profit on the transaction.

When quoting the sterling price for a foreign security, the mark-up will usually range from 0.5% for smaller trades to about 0.25% or lower for larger ones. This is not a deficiency of the CDI system itself, just a reality of the market. Using CDIs can still be cost-effective relative to the costs of trading directly overseas, since your broker does not need to incorporate other costs of an international service."

masonic

EdGasketTheSecond said:

I am not sure why it puts your mind at rest unless you like higher dealing charges:

"It’s also worth being aware that since CDIs of a foreign stock will usually be traded through a UK market maker, the price that the market maker quotes will not be the same as is available on the overseas exchange, since they need to earn a profit on the transaction.

When quoting the sterling price for a foreign security, the mark-up will usually range from 0.5% for smaller trades to about 0.25% or lower for larger ones. This is not a deficiency of the CDI system itself, just a reality of the market. Using CDIs can still be cost-effective relative to the costs of trading directly overseas, since your broker does not need to incorporate other costs of an international service."

So there is a possibility of increased spread. I don't think we've observed this with Vanguard (and presumably wouldn't with iShares), but perhaps it is more relevant for smaller players where volumes are low.

Sailtheworld

EdGasketTheSecond said:

I am not sure why it puts your mind at rest unless you like higher dealing charges:

"It’s also worth being aware that since CDIs of a foreign stock will usually be traded through a UK market maker, the price that the market maker quotes will not be the same as is available on the overseas exchange, since they need to earn a profit on the transaction.

When quoting the sterling price for a foreign security, the mark-up will usually range from 0.5% for smaller trades to about 0.25% or lower for larger ones. This is not a deficiency of the CDI system itself, just a reality of the market. Using CDIs can still be cost-effective relative to the costs of trading directly overseas, since your broker does not need to incorporate other costs of an international service."

Anyone that invests in overseas shares (just about everyone) already pays this cost. This paragraph is saying this might actually be more cost effective via CDIs. 

I bought some VWRL earlier and the spread was about 6 pence - that's less than 0.1%. It's literally pennies and if I'd hit the deal now price button 5 seconds earlier or later the price would've changed by more or less than that. That's my fourth third trade of the year and even if the spread's gone up by a penny as a result of this (it has't) I'm down 4 pence as a result.

As I've got Irish domiciled ETFs I've read this thread at least three times and spent a good time googling but I'm none the wiser when it comes to understanding what the issue is meant to be. I've now traded 'affected' stocks and noticed no difference in practice. Are you sure this isn't a non issue?

bowlhead99

Sailtheworld said:

As I've got Irish domiciled ETFs I've read this thread at least three times and spent a good time googling but I'm none the wiser when it comes to understanding what the issue is meant to be. I've now traded 'affected' stocks and noticed no difference in practice. Are you sure this isn't a non issue?

It's a 'making a mountain out of a molehill' issue.