Calastone, the largest global funds network, has released its latest Exchange Traded Fund (ETF) white paper which examined several of the processes that take place across the lifecycle of an ETF, assesses the industry’s state of readiness to tackle change, and looks at how ETF asset servicers need to adapt to surmount these challenges.

Additionally, the white paper explores the increasingly diverse and complex ETF market and reveals new data from a survey1 of 104 personnel working within fund issuers, 114 within fund administration and 95 within authorised participants internationally.

Since its inception over 30 years ago, the ETF market has grown astronomically as new entrants flood the market, introducing unprecedented levels of complexity, diversity, and pressure on ETF asset servicers. As a result, asset servicers are forced to adapt to keep up with the evolving needs of their fund issuer clients, but many are struggling to do so.

According to Calastone’s white paper, the lack of progress around automation, particularly around the creation and redemption process in the primary market, has been raised by clients of asset servicers as being a problem. Key findings from Calastone’s white paper further reveal a misalignment between the priorities of asset servicers and issuers in this area:

• 57.6% of issuers said the creation and redemption process was the most important factor when measuring the success of their ETF fund administration services.
• 41.4% of issuers said that the creation and redemption process was one of the two areas of ETF servicing most in need of improvement.
• However, just 22.8% of asset servicers said enhancing the creation and redemption process was one of their two main business priorities, putting it behind fund accounting, transfer agency, technology and operational support and regulatory compliance and reporting.

David McGuinness, product director at Calastone, said: “The ETF industry is currently witnessing unprecedented levels of growth and the requirements of fund issuers are becoming increasingly complex. The creation and redemption process underpins primary market liquidity and is an area that asset servicers must focus on if they are to retain and win business moving forward. Asset servicers need to look at how they can upgrade their systems to improve transparency and enhance standardisation across their core processes, as this will ultimately benefit the end investor.”