The ETF market has become a pillar of modern investing. With its combination of liquidity, transparency and cost-efficiency, the structure continues to reshape how investors gain access to markets. But as the industry matures, we’re seeing new pressure points emerge, not only in the primary market, where the operational plumbing has long needed attention, but increasingly in the secondary market, particularly around how retail investors interact with ETFs.
At this year’s ETF Stream Ecosystem Unwrapped event, I explored how both ends of the ETF servicing spectrum are evolving. For the first time, we’re seeing clear momentum toward modernising both the operational heart of ETF issuance and the user-facing infrastructure needed to unlock broader access, particularly in the UK.
The outlook is optimistic. But it’s also clear that collaboration, modernisation and innovation are needed to ensure the ETF model continues to deliver for all participants – issuers, platforms, and investors alike.
Under the Surface: The Realities of the Primary Market
ETFs are often viewed as seamless vehicles, but that smooth investor experience can mask a surprisingly complex operational environment, particularly in the primary market.
Issuers and authorised participants (APs) still face friction from manual workflows, limited visibility across stakeholders, and legacy systems not originally designed for the demands of ETFs. 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’s fit for purpose, not just for today’s requirements, but for the future.
As ETF strategies become more varied – from active to multi-asset and even private market exposures – the operational foundation must evolve. Add to this the acceleration of settlement cycles (with T+1 already in place for some markets and on the horizon for the majority), increasing volumes, and tighter regulatory scrutiny under frameworks like CSDR, and it’s clear that scalable, real-time servicing is now essential.
Building the Infrastructure for Growth
At Calastone, we’ve developed an ETF servicing platform to help meet these challenges. Our approach centres on real-time, fully integrated processing, providing end-to-end visibility and connectivity across issuers, APs, asset servicers and other key market participants.
Rather than patchwork technology upgrades, we advocate for a shared, modular infrastructure, one that’s aligned with the industry’s roadmap and built for flexibility. This allows firms to improve efficiency, mitigate risk, and scale more easily without the cost and complexity of bespoke internal builds.
We’re also collaborating with partners like HSBC to push this vision further, working together to reshape the servicing environment with a global, real-time capability that delivers across the full ETF lifecycle.
Unlocking Retail Access: The Role of the Secondary Market
While ETF servicing conversations often focus on the primary market, there’s a parallel opportunity emerging in the secondary market, particularly around retail participation, and here, there’s a tale of two models.
In the UK, ETFs are typically traded like equities across most platforms. This approach leads to high per-order costs, discouraging small or regular investments. What’s more, there’s no widespread infrastructure to support ETF savings plans for retail investors, meaning long-term, automated investment strategies remain out of reach for many.
Germany, by contrast, has successfully implemented a low-cost, automated investment model for ETFs, leading to a significant surge in retail participation. The number of retail ETF investors has grown from 1.3 million in 2019 to a projected 9 million by the end of 2025. This success has been driven by several core factors:
- Zero trading fees and no custody account charges
- Minimum monthly investments as low as €25
- Improved digital accessibility through online brokers
- Clear messaging around long-term wealth creation
These changes have removed key barriers and positioned ETFs as a mainstream option for long-term retail savers.
At Calastone, we’re actively exploring how a similar structure could be adapted to the UK market. By partnering with platforms, ETF brokers, and custodians, we’re looking at how to replicate the mutual fund experience for ETFs, supporting features such as order aggregation, fractional ownership, and real-time fulfilment.
The goal is to enable regular ETF savings plans with confirmed pricing and fractional investing, so that a £50 or £100 monthly contribution can go just as far in an ETF portfolio as it would in a traditional mutual fund investment within a pension or ISA wrapper.
Our existing orders network, already used by over 250 platforms in the UK and 1,500 globally, offers a strong foundation to make this shift. Combined with our message translation and fulfilment capabilities, it could pave the way for far broader retail ETF adoption, offering investors lower costs and platforms higher AUM, all within a structure that’s familiar, efficient, and scalable.
An Inflection Point for Industry Infrastructure
Across both primary and secondary markets, the message from recent industry events has been consistent: operational resilience and innovation must go hand in hand.
Growth in active and private market ETFs, for instance, offers exciting potential, but also brings new servicing complexity. The infrastructure must be ready. Regulators are also asking tougher questions about how ETFs perform during periods of stress, as outlined in IOSCO’s recent Good Practices guidance. For the market to continue expanding, it needs to prove it can maintain efficiency, transparency and stability across all conditions.
Lowering transaction costs and enabling fractionalisation in the secondary market will be key to accelerating retail ETF adoption. At the same time, the primary market must evolve to support real-time insights, improved liquidity, and reduced risk across the transaction lifecycle – capabilities that are no longer optional, but essential.
