Fed: No bond ETF fees for BlackRock; JP Morgan still AWOL

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Under the new Federal Reserve asset purchasing programme, BlackRock, the asset manager which is acting as the trading function for the programme, will charge no asset management fee on the value of any exchange traded funds (ETFs) that are either from BlackRock or any other sponsors, held within the Secondary Market Corporate Credit Facility (SMCCF).

The Federal Reserve Bank of New York began to buy fixed income exchange-traded funds (ETFs) via the SMCCF on 12 May 2020. BlackRock FMA will buy and sell corporate bonds, corporate loans, and corporate bond ETFs as a fiduciary on a best execution basis, in order to best advance the Facility’s objectives.

Concerns had been voiced around potential conflicts of interest as BlackRock is an issuer of ETFs. According to Federal Reserve documents, in addition to not charging any asset management fee on ETFs, BlackRock will credit back to the SMCCF the value of all underlying fees and income that BlackRock earns, including for securities lending, on its own iShares ETFs held within the SMCCF. The credit will be applied to the asset management fee on the assignment. Net fees for BlackRock, including the value of the credit, shall be made public on a regular basis.

BlackRock will not earn any other fees or income, including from securities lending, in connection with the Facility’s purchase of ETFs.

Since 12 May additional dealers have been added to the original list, including:
• Amherst Pierpont
• Citigroup
• Daiwa Capital Markets
• Deutsche Bank
• HSBC Securities

However, JP Morgan is still absent, which is notable given its significant role in the fixed income space. The Fed declined to comment on the bank’s absence, JP Morgan also declined to comment.

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