The ETF market is becoming more competitive by the day. See why a holistic service approach could be the differentiator for your fund.
As the growth of passive investing continues to rise, it’s no wonder that market demand is shifting toward exchange traded funds (ETFs).
ETFs can offer advantages over mutual funds, including greater tax efficiencies, and are much more attractive to investors who are looking for investment products that trade like stocks — especially among newer investors. Total assets under management for global ETFs now stand at over $4 trillion.1
Whether launching an ETF for the first time, or expanding your current fund offering, ETF managers can maximize their fund’s potential by selecting a service provider with a holistic approach.
ETFs require an enhanced service offering from custodian banks and administrators. Although core custody, fund accounting and administration for an ETF is similar to mutual fund products; there are enhanced daily functions needed to manage an ETF. These functions include daily basket creation, deposit and withdrawal of ETF creation units, and specialized collateral management. There are a limited number of global service providers which offer these capabilities.
Beyond day-to-day support, a key factor to an ETF’s success is access to Authorized Participants (APs) and capital market support. Capital market services extend to both primary market order flow and share issuance to order book facilitation in the secondary market.
APs are critical to connecting an ETF’s primary and secondary market with the ability to transact directly with the fund to create/redeem shares. To best manage risk and offer competitive access, APs require daily information on the underlying fund holdings. A service provider’s ability to deliver flexible data points results in an efficient market.
ETFs also have initial listing requirements that result in the need for upfront seed capital. APs, market-makers, and service providers, working together, can help ETF find solutions.
The right relationship with the AP community can be the main difference between a successful ETF versus one that never gets off the ground.
Custodian and administrators facilitate information and order flow into the fund. If an AP encounters trading restrictions or difficulties in delivering any of the underlying ETF basket components; administrators can facilitate custom baskets or trading in securities. Supporting this through end-to-end automated solutions results in less friction with APs and efficiencies in ETF dealing.
Another aspect is effectively managing collateral in the event that an AP fails to deliver basket components or collateral management around the usage of derivatives.
In today’s competitive market, having an expert advisor on your side provides you a critical edge. Our ETF Solutions team works closely with you at every stage of the ETF lifecycle, offering deep industry perspectives and hands-on support to address your most complex needs.
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