Calastone, the largest global funds network, has released a new report, “Navigating the Future of ETFs”, exploring how enhancements in primary market technology could support the growth of Asia’s ETF sector amid its rapid expansion. While global ETF assets under management (AUM) rose by over 9% in the past year to exceed $12 trillion, Asia’s ETF market has outpaced global growth with a 10-year CAGR of 23.6%, compared to a worldwide average of 17.5%[1]. This growth trajectory underscores the importance of efficient, scalable technology to manage the increasing volume and complexity of ETFs.
To gain insight into these challenges, Calastone surveyed three key players in the ETF primary market ecosystem—Asset Servicers, Authorised Participants (APs), and Fund Issuers, focussing on those involved in distributing or servicing ETFs in Asia. Findings reveal that primary market processes remain inefficient compared to global standards, complicating operations for APs and issuers who often navigate varied regulatory environments and market structures across jurisdictions.
According to the report, while 57% of asset servicers rated their technology as “very good,” APs and issuers expressed more skepticism, with 70% of issuers and 80% of APs rating asset servicing technology as merely “adequate.” This disparity highlights the urgent need for improvements, particularly in workflow and order management.
Elsewhere, 60% of APs reported a lack of confidence in their servicer’s ability to adapt to changes like the transition to T+1 settlement, which may suggest a need to evaluate the readiness of primary market servicing technology. This is particularly concerning for the industry as not only is AUM increasing, but the number of ETFs has also surged, growing from just 49 in 2006 to 3,027 by mid-2024. The rising volume and complexity of these products make scalable, automated technology essential to handle the demands of a rapidly evolving market.
This growth has accelerated the need for efficiency, automation, and, most importantly, standardisation—a need that has not gone unnoticed by key players. Nearly all survey respondents indicated that standardisation has become equally or more important over the past decade, underscoring the industry’s recognition of these challenges.
Justin Christopher, Managing Director and Head of Asia at Calastone, says, “ETF primary market systems in Asia would greatly benefit from increased standardisation, as many processes still rely on manual workflows and spreadsheets, creating inefficiencies and operational risks. Recognising these challenges, we set out to assess the scale of the issue. With the ETF market growing rapidly, tackling these inefficiencies could unlock the industry’s full potential.”
“Our ambition at Calastone is to meet this demand by delivering an automated, standardised primary market solution and extending the cross-market connectivity we offer to mutual funds into the ETF ecosystem. Leading asset servicers are already collaborating with third parties to drive automation and standardisation across the ETF lifecycle in the primary market – a critical area that, until recently, has been largely underserved,” adds Justin Christopher, Managing Director, and Head of Asia at Calastone.
[1] https://etfgi.com/news/press-releases/2024/08/etfgi-reports-assets-invested-etfs-industry-asia-pacific-ex-japan
