LONDON (Reuters) - Euroclear has agreed to buy EMXCo, a technology company that automates the dealing and settling of mutual funds, the pan-European securities settlement group said on Monday.
Euroclear said the acquisition, which will combine EMXCo’s automated order-routing capabilities with the real-time settlement capacity of its UK and Irish equity settlement system CREST, could cut UK fund settlement costs by 50 percent.
The deal, which will take effect in January, will lead to lower fees, quicker cash payments and lower operational risks in settling funds, and will make investment funds a more attractive asset to invest in for both retail and institutional investors, Euroclear said in a statement.
“Processing for UK mutual funds is plagued with inefficiencies, high costs and risks largely due to manual intervention,” said Tim May, chief executive officer of CRESTCo and future chairman of EMXCo.
“Together, Euroclear and EMXCo intend to eliminate the operational burdens impeding the UK fund market’s ability to operate efficiently and cost effectively.”
Charlotte Black, a director of private client money manager Brewin Dolphin, said the move would significantly cut costs and boost investment in funds.
“Brewin Dolphin’s costs of administering a unit trust holding for a private investor is presently around 15 times the cost of a similar investment in an equity — and I believe the retail industry generally counts the cost at 20 to 30 times,” she said.
“I expect this development to increase over time our efficiency, reduce our costs and expand this part of our business dramatically over time.”
Euroclear estimates that the UK mutual fund market has grown at an average of 21 percent annually for the past three years.
The settlement house did not release financial details of the deal.
The major shareholders of EMXCo are fund managers Fidelity International, Hargreaves Lansdown, Invesco Perpetual, M&G, Skandia and Threadneedle.