The use of synthetic ETFs has become increasingly popular in recent years, offering investors exposure to a diverse range of assets through a single trade. These funds are created using total return swaps (TRS), where a bank or dealer enters into an agreement with an ETF issuer to provide the returns of a particular index or asset class. The issuer then uses the returns to create an ETF that tracks the performance of that index or asset class.

While synthetic ETFs offer many benefits, such as greater flexibility and lower costs compared to traditional ETFs, they also require careful management of collateral to ensure that the risks associated with TRS are properly managed. Collateral management involves the posting of assets as collateral to secure the performance of the TRS, and the proper management of this collateral is essential for ensuring the stability of the ETF.

Managing collateral for TRS-hedged Synthetic ETFs can be complex and time-consuming. Banks and dealers must comply with a range of requirements from issuers, such as regulations, fund structure, concentration limits, investment guidelines, and ESG constraints. This often requires manual processes that are open to error, driving up costs and increasing risk for banks and their clients.

This is where we come in. Wematch is a one-stop shop for financial institutions looking to optimize collateral in the TRS market. Our Synthetic ETFs module consolidates collateral management and automates optimization processes, seamlessly incorporating the complex rules that Synthetic ETFs must have in place when receiving collateral, including UCITS rules, ESG constraints, custom index requirements, concentration limits, and more.

The Wematch Synthetic ETF module offers several key benefits for banks and dealers. It enables consolidated collateral management, which unifies all collateral regardless of where a trade sits – with the bank, its clients, or a fund. Customizable rules allow for fully automated collateral schedules according to the fund’s unique rules, while dynamic management based on real-time information ensures increased accuracy. Bulk management allows for multiple proposals to be communicated concurrently, streamlining the process and reducing the time taken for a dealer to complete the associated workflow from around 4 hours to just 15 minutes.

Thanks to our web-based SaaS technology, the Wematch platform is easy to implement and offers significant cost savings across collateral, balance sheet, and capital costs. It reduces risk by ensuring that collateral is optimized in line with client requirements and downstream compliance requirements. And as a unified platform for TRS collateral optimization for Synthetic ETFs, it offers continual improvement thanks to feature upgrades based on close consultation with end users.

Although managing collateral for TRS-hedged Synthetic ETFs can be complex and time-consuming, at Wematch we offer a platform that optimizes collateral management and reduces risk. With our consolidated collateral management, customizable rules, dynamic management, bulk management, and collateral ecosystem, we are the one-stop shop for financial institutions looking to eliminate inefficiencies, reduce capital costs, improve the balance sheet, and optimize collateral in the TRS market.

To learn more about our Platform, reach out.