Few areas of financial services are under as much operational pressure as post-trade – and nowhere was this more evident than at the recent PostTrade 360 Conference in Stockholm. With more than 1,600 attendees, the event delivered deep insights on how the industry is responding to challenges such as T+1 settlement, market reforms, and the rising complexity of ETFs.
On Day 1 of PostTrade 360, I spoke on a panel – ‘As ETFs grow – what’s in it for operations?’ – which explored some of the challenges facing the ETF market, caused primarily by the asset class’s exponential AUM growth and increasing complexity, not to mention the knock-on effects of T+1.
The evolution of ETFs continues….
The ETF market is booming, but for many asset servicers, keeping up with the pace of change is becoming a constant struggle. As a result, issuers and Authorised Participants (APs) alike face friction from manual workflows, limited visibility across stakeholders and legacy systems.
So far this year, $1.09 trillion of fresh capital has been pumped into ETFs, bringing their collective AUM to a record $17.34 trillion[1] – a relentless expansion that shows no sign of losing any momentum. Although AUM growth is obviously a good thing for the industry, I explained to my panel that as ETF volumes increase, it is putting a greater strain on the operational infrastructure and technology stacks at asset servicers.
This is partly because a lot of asset servicers still lean heavily on manual processing, including end of day batch processing, EUCs and Microsoft Excel. I noted that this approach was perfectly acceptable when the industry was dealing with just a handful of ETF orders each day, but this is no longer what’s happening – in fact, we have seen 74 months of consecutive inflows into ETFs, resulting in the number of daily orders surging.
Compounding matters further is that ETFs are no longer overwhelmingly vanilla constructs offering investors exposures to simple indices. Over the last few years, there has been a rise in esoteric products coming to market – including actively managed and semi-transparent ETFs, mutual fund ETF conversions, thematic, leveraged, inverse, derivative-based and even Crypto ETFs.
As noted in our 2024 Report – A new ETF Asset Servicing Paradigm Emerges – the growing complexity of ETFs – and their underlyings – are creating even more challenges for asset servicers.
But there are solutions, as several panellists pointed out.
While service provider diversification is critically important for mitigating counterparty risk at large ETF issuers, it can create added operational complexity, for example multiple onboardings, and navigating different portals for smaller or mid-sized issuers, noted Erik Bartolucci, ETF Capital Markets Specialist, L&G Asset Management, also speaking on our panel.
I broadly echo this view – while having multiple providers is a sensible strategy if you happen to be a large, global issuer, it does not make much sense if you are a new market entrant or just a smaller issuer. In the case of the latter, appointing one – albeit a high-calibre – service provider is probably the best approach, as it will enable issuers to streamline their operations.
Asset servicers also need to make material enhancements to their technology.
Without automation, inefficiencies risk proliferating in the ETF creation and redemption process, which in turn will have a negative impact on primary market liquidity. I also stressed that manual processing is preventing APs from having near real-time transparency into the status of their orders. Often, an AP will not get full visibility into how their order is progressing until late on T+1 – which is forcing some firms to put on hedges to protect themselves against market gyrations.
In our recent survey, just 4% of ETF issuers rated their asset servicers’ technology as “very good”, while the majority described it as merely “adequate”. That sentiment reflects the urgent need for an infrastructure that is fit for purpose, not just for today’s requirements, but for the future. To meet the needs of the ETF industry, asset servicers have little choice but to embrace automation.
T+1 shakes up the ETF market
T+1 is transforming capital markets, from pre-trade right through to post-trade, and ETFs are no exception – again, asset servicers are going to have to adapt through automation.
The story so far with T+1 is that it went live in North America back in May 2024, whilst the EU, UK and Switzerland are due to follow suit in October 2027. It is expected the majority of global markets will be settling on T+1 by around 2030.
According to Antonette Kleiser, Managing Director, ETF Product, Brown Brothers Harriman, the US transition to T+1 went fairly smoothly, mainly due to the amount of forward planning that went into the transition, although she conceded there were concerns ahead of its implementation about how it would impact certain ETF processes.
The spectre of market fragmentation emerging between the US on T+1 and Europe/Asia-Pacific on T+2 fuelled fears there would be an increase in settlement mismatches during the ETF subscription and redemption process and between primary and secondary market cycles.
Previous predictions, however, that ETF settlement fails would trend upwards when T+1 went live in the US did not materialise either, although Antonette observed there has been a sharp uptick in partial settlements and an increased use of switch trades between ETF share classes.
So what does this mean for Europe?
T+1 was covered extensively during a number of streams at PostTrade 360, and several experts highlighted the US’s implementation went ahead without too many snags because the industry was so well-prepared for the changes and tested its systems repeatedly in the months leading up to the deadline. In contrast to Europe, the US’s capital markets are also fairly simple – there is only one CSD and regulations are broadly harmonised. In other words, the European transition to T+1 is likely to throw up far more complications than in the US, according to multiple speakers.
Despite the EU’s Central Securities Depositories Regulation (CSDR) penalising firms for settlement indiscipline, the European Securities and Markets Authority (ESMA) has flagged that ETF settlement fail rates remain stubbornly high. [2]
While increasing headcount could help firms manage the T+1 transition in the short-term, it is not sustainable – if the industry is to make a success of T+1, it has to automate.
During the panel, I stressed that T+1 in Europe is looming – it may seem like a lifetime away, but October 2027 is creeping closer, so asset servicers need to start preparing.
To achieve this, automation will be a critical enabler so that asset servicers can get AP confirms out before the start of the day on T+1 whilst also giving APs full transparency into their trades/order statuses. Without making these incremental improvements, I said it is very likely that the number of ETF settlement fails will increase in Europe at the point when T+1 goes live.
Getting on top of the issue
To help meet these challenges, we have launched an ETF servicing platform designed around automated, fully integrated processing. Our approach delivers real-time calculation, end-to-end visibility and connectivity across issuers, APs, asset servicers and other key market participants. Rather than relying on patchwork upgrades, we advocate for a shared, modular infrastructure built for scale, 24/7 access and API connectivity. This enables firms to improve efficiency, mitigate risk and prepare for the next phase of ETF growth.
[1] ETFGI – August 27, 2025 – ETFGI reports that assets invested in the ETFs industry globally reached a new record of US$17.34 trillion and US$1.09 trillion in YTD Net inflows at the end of July at end of July
[2] ETF Stream – September 16, 2024 – Settlement fails for ETFs remain at high levels, ESMA warns
