Calastone, the largest global funds network, has released its new Exchange Traded Fund (ETF) research in partnership with ETF Stream. For the past three decades, the ETF market has skyrocketed with ETF assets under management (AUM) increasing 9.2% to $12.71 trillion globally[1]. Recognising the rapid growth and potential of ETFs, Calastone surveyed the three main players in the ETF primary market ecosystem – the Asset Servicers, Authorised Participants (APs) and Fund Issuers – to gain a deeper understanding of the ETF primary market and explore how it can evolve alongside its continued growth.
As the ETF market grows, asset servicers are increasingly aware of the rising complexity of ETF products. In the survey, 40% of asset servicers highlighted this growing product complexity as the main challenge that will require further improvements in primary market servicing and technology. This concern was cited the most frequently among all options surveyed.
ETF issuers highlighted the move to T+1 settlements as the biggest challenge (38%) to ETF primary market servicing. There are also concerns within the wider industry around whether asset servicers are ready, with nearly half (44%) of those surveyed responding that they are not confident asset servicers can meet the challenges given the current state of ETF technology. The current state of play highlights the need for more robust, scalable tech – specifically to improve workflow management, order management, and settlements.
The research also reveals a significant disparity in how different parties feel about the existing servicing technology. Over 60% of asset servicers consider the current servicing technology to be ‘very good’, compared to just over 10% of APs and less than 5% of fund issuers. While most asset servicers feel the status quo is working just fine, their clients feel there is vast room for improvement, as manual processes exacerbate the challenges around growing transaction volumes.
This has accelerated the need for efficiency, automation and, most importantly, standardisation – something that has not gone unnoticed by the key players, nearly all of whom, the survey found, felt that the need for standardisation in European ETFs has become equally or more important over the past decade.
David McGuinness, Product Director at Calastone, comments: “The ETF industry is at a pivotal moment. Forward-thinking asset servicers are already looking to automate and standardise the ETF lifecycle in the primary market, which until recently has been a major gap in the market. Our ambition at Calastone is to meet this demand for an automated, standardised primary market and replicate the cross-market connectivity we provide to mutual funds within the ETF ecosystem.”
Calastone’s technology promotes such standardisation, making it easier for market participants to interact seamlessly. By automating processes and providing better tools for managing the entire ETF order lifecycle, Calastone enhances the efficiency and scalability of asset servicers, enabling them to better support the growing ETF market.
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[1] Markets Media – April 2024
