The meteoric rise of ETFs: Future investment
25 November 2025
Set to face a steep upward trajectory in the next 10 years, the ETF market has secured the attention of the securities finance space. As the industry reviews the expanding possibilities, experts debate whether the current infrastructure is ready to handle such growth. Carmella Haswell reports
Image: Paulista/stock.adobe.com
The role of the exchange traded fund (ETF) is expanding in the securities finance world, impacting liquidity, collateral, and risk management strategies. With the ETF market projected to reach US$35 trillion in assets under management (AUM) by 2035, industry specialists foresee an increasing demand from authorised participants and market makers to borrow securities.
This growth has already been in evidence over the last 12 months.
Currently, ETF securities lending revenues are up 79.3 per cent year-over-year (YoY) to US$810 million, according to S&P Global Market Intelligence data. With average fees rising 41.5 per cent to 86 basis points and on-loan balances up 28 per cent to US$125 billion, this signals a great demand for ETF borrowing across the ecosystem.
The growth of active, semi-transparent, thematic, and fixed income ETFs is a trending topic, along with increased institutional adoption. In order to capitalise on this opportunity, Peggy Vena, head of ETF services at Citi Investor Services, says service providers must offer enhanced fund administration for complex ETF structures, advanced collateral management platforms, and sophisticated data analytics for risk insights.The ETF offers a blend of liquidity, transparency, and operational efficiency, which Justin Aldridge, head of Agency Lending at Fidelity Investments, believes aligns well with modern financing needs. More institutional investors hold ETFs, and subsequently include those assets in their lending programmes, according to Fidelity Agency Lending. Using ETFs for securities lending can increase liquidity and may improve the overall breadth of ownership.
He continues: 鈥淓TFs are increasingly used not only as lendable assets but also as collateral in repo and non-cash securities lending transactions. Their standardised structure and ability to trade intraday make them particularly attractive for managing short-term funding and risk.
鈥淎s market participants seek to optimise capital and collateral usage, ETFs 鈥 especially fixed income and large-cap equity ETFs 鈥 are emerging as preferred instruments due to their ease of valuation, diversification, and settlement reliability.鈥
An important factor impacting this collateral landscape is the move toward digital collateral mobility, which is accelerating with cross-ledger and tokenised collateral solutions now enabling intraday, interoperable collateral flows at scale. Jordan Howie, buy side Trading Services sales at J.P. Morgan, highlights how these developments are redefining what liquidity means in collateral terms.
鈥淭he opportunity, and the challenge, is governance; participants must recognise ETFs as a distinct collateral class, implementing per-ETF eligibility, haircut, and concentration frameworks to manage liquidity asymmetries,鈥 Howie comments. 鈥淭hose that integrate ETF financing into broader collateral and execution workflows will capture material balance-sheet and liquidity advantages in the years ahead.鈥
Providing further insights, Matt Chessum, executive director of equity analytic products at S&P Global Market Intelligence, says the increasing complexity of ETF structures is creating a virtuous cycle where securities lending becomes essential to their functioning, whether for hedging positions, optimising collateral management, or enhancing returns.
ETF managers, he explains, are using lending revenue to offset management fees, effectively lowering their total expense ratio and remaining competitive in a crowded marketplace.
鈥淭he market is clearly evolving toward more sophisticated ETF user cases for both yield enhancement and complex trading strategies, with securities lending becoming an increasingly integral component of ETF market efficiency rather than just an ancillary revenue stream,鈥 Chessum states.
Around the world
Traditionally known as the dominant market in the ETF world, the US faces a continued adoption of active ETFs, mutual fund conversions, derivatives-based ETFs, and digital asset ETFs 鈥 which is supporting the next leg of growth in the country.
However, global opportunities are expanding outside of this part of the world, with EMEA ETF revenue experiencing a 60.5 per cent YoY jump during Q1鈥換3 2025, while Asian ETFs were up 113.8 per cent for the same period, as revealed by S&P Global Market Intelligence.
Reviewing the market, Henri Boua, ETF advisory and execution, Markets & Securities Services at HSBC, says retail adoption and active ETFs are the main catalysts for the growth in Europe, while in Asia there are more varied reasons across different markets.
Taiwan (retail adoption, active ETFs), Australia (widespread adoption across retail and institutional, active ETFs), Japan (regulatory tailwind through the Nippon Individual Savings Account), and South Korea (retail adoption, leverage and inverse ETFs, thematic ETFs, active ETFs) are becoming major engines of growth.
Throughout 2025, demand from prime clients and prime brokers for European ETFs has continued to grow. Value on loan stands at circa US$9.5 billion, up 37 per cent YoY, compared to circa US$153 billion in the US, which represents a 21 per cent increase YoY.
Curtis Dutton, global head of trading, Agency Securities Lending & Liquidity Services at HSBC, says there is still significant room for expansion in Europe as central securities depository (CSD) infrastructure for clearing and settling ETF trades evolves, and ETF usage as a hedging tool develops.
In a record year, the global ETF AUM reached US$19 trillion with US$1.4 trillion of inflows as of September 2025. But what is driving this surge in ETF activity around the world?
There are a multitude of reasons for this, with market participants highlighting the nature of the ETF wrapper itself, the rise of active ETFs, a boost in investor confidence, as well as demand for flexibility and structural advantages, as key drivers.
The rise of active ETFs 鈥 now exceeding US$1.7 trillion in global AUM 鈥 has brought to the forefront numerous benefits, which is leading to additional borrow and lend demand. They offer flexibility and the potential alpha of active management within a liquid, exchange-traded structure. Active ETFs provide a more diverse set of holdings relative to indexed or passive products, and therefore 鈥 in theory at least 鈥 have the potential to generate better returns.
They provide a unique appeal in securities lending, according to Aldridge, and hold a dynamic mix of securities, including specials that may be in higher demand and harder to borrow. He adds: 鈥淭his differentiated supply can enhance lending opportunities, especially in markets where scarcity drives value. As active ETF issuance grows, securities finance participants are increasingly viewing them as a strategic source of lendable assets that combine alpha generation with operational efficiency.鈥
While they display many benefits, Dutton notes that active ETFs are 鈥渃urrently less attractive as a collateral tool鈥 because they can carry heavier discounts. Additionally, he pinpoints that an 鈥渦npredictable portfolio鈥 can make it more complicated to use the underlying assets in a liquidation event. Despite this, Dutton suggests that this unpredictability can make active ETFs a potentially successful lending product.
An increase in investor confidence sits hand-in-hand with the appeal of the ETF wrapper, which provides participants with transparency, liquidity, cost-effectiveness, and accessibility. Market participants also cite standardisation, price transparency, and ease of settlement as appealing aspects to both lenders and borrowers looking to streamline collateral mobility.
On the demand side, ETFs鈥 efficiency, transparency, and tax advantages continue to attract inflows, Howie explains. On the supply side, the proliferation of active and fixed income ETFs has expanded the universe of lendable, financing-eligible collateral.
ETF units鈥 fungibility allows for simpler sourcing, mobilisation, and reuse compared with traditional mutual fund shares or bespoke baskets, Howie adds. Meanwhile, strong secondary-market depth, supported by authorised participants and market makers, 鈥済ives repo desks confidence to price and fund these instruments efficiently鈥.
Mutual funds vs ETFs
Mutual funds are key participants in the securities lending market. With the ETF gaining traction, it is only natural to look at how the two compare.
ETFs and mutual funds share similarities 鈥 the biggest being that they both represent baskets of individual stocks or bonds. But while ETFs trade throughout the trading day at market prices, mutual funds are priced at the end of the trading day and are bought or sold based on their net asset value (NAV). As such, ETFs offer real-time pricing and the ability to execute trades quickly.
鈥淭he meteoric rise of ETFs in securities financing has fundamentally reshaped the landscape previously dominated by mutual funds and other traditional instruments,鈥 says Chessum.
As a result of this 鈥渞emarkable growth鈥, S&P Global Market Intelligence has moved to create a separate investment category specifically for ETFs, splitting them from mutual funds in its securities finance dataset.
While ETFs are gaining ground, Aldridge says mutual funds continue to serve important roles in long-term investment strategies, with both structures coexisting and serving distinct investor and operational needs. Sharing a similar outlook, Howie suggests ETFs are not replacing mutual funds outright, but redefining their relative roles within the market鈥檚 liquidity and financing structure.
He continues: 鈥淎s ETF markets deepen, particularly around fixed income and active strategies, their accessibility, liquidity, and collateral efficiency are drawing capital from traditional index and active mutual-fund mandates.
鈥淓TFs now routinely serve dual purposes 鈥 investment exposure and financing assets. For securities finance desks, that means an expanding, more tradable inventory that can be mobilised for funding or transformation.鈥
By contrast, mutual funds remain preferred where investors prioritise NAV execution, long-term horizons, or asset classes where intraday liquidity offers little incremental value, Howie explains. This divergence is visible in the data: ETF assets continue to grow at double-digit annual rates, while open-end mutual-fund flows have stagnated, or even turned negative in several regions. Mutual fund to ETF conversions are also rising each year, he adds, climbing from 15 in 2021, to 57 in 2024.
The result, according to Howie, is that ETFs increasingly underpin day-to-day market liquidity, while mutual funds hold 鈥減atient鈥 capital that anchors long-term investment strategies. 鈥淚n short, ETFs have become the operational backbone of liquidity and collateral mobilisation, while mutual funds are settling into a complementary, long-horizon role 鈥 together forming a more layered, efficient securities finance ecosystem,鈥 he confirms.
Concluding the discussion, Bill Mascaro, head of securities finance trading at Citi Investor Services, says: 鈥淪hare class approval has the potential to significantly increase ETFs鈥 constituent availability in the securities finance market, at the expense of mutual fund鈥檚 constituent availability, as investor interest realigns.
鈥淭here are some technical aspects that still need to be worked out, but this could trigger a broader shift in how securities are lent and under what parameters with implications to hold-backs to accommodate redemptions and non-qualified dividend income considerations.鈥
Battling barriers
While a promising future lies ahead for the ETF, it is not without barriers. In this respect, market participants highlight the need for ETF-specific eligibility frameworks with differentiated haircuts, concentration limits, and liquidity stress tests. Howie explains that while large, core equity and fixed income ETFs trade with deep liquidity, smaller or specialised funds can behave very differently under stress.
Mascaro notes: 鈥淲ithin a triparty account there is tailored eligibility criteria that exists on security level acceptance within an index or market-cap weighting, and this collateral specificity will likely remain a challenge for broader acceptance of ETFs moving forward.鈥
Further, participants seeking to utilise ETFs as collateral must navigate a landscape divided between two distinct classes of these instruments, explains Chessum. The first category comprises straightforward index trackers, predominantly holding equities or standard fixed income securities, which are widely accepted as collateral.
In contrast, the second category includes complex ETF structures, such as leveraged, inverse, or those utilising synthetic replication techniques, which, despite trading on exchanges like equities, present significant challenges as collateral.
These complex instruments often face regulatory scrutiny with higher haircut requirements across jurisdictions, encounter difficulties in accurate pricing during market volatility, and may experience substantial valuation fluctuations that undermine their reliability as collateral assets, according to Chessum. In addition, he believes many counterparty risk frameworks and legacy collateral management systems lack the sophistication to properly evaluate and process these more complex ETF structures.
It appears that the ETF market鈥檚 rapid growth demands stronger infrastructure to support its expanding role in securities financing. Aldridge notes that collateral management systems must evolve to handle ETF-specific requirements, such as daily NAV tracking, substitutions, and corporate actions, ensuring operational efficiency and risk control.
He continues: 鈥淪econdly, the liquidity and concentration of an ETF鈥檚 specific securities are factors that come into play when determining whether an ETF may be eligible as collateral. The less liquid, and less diversified, the less likely the ETF will be eligible.鈥
Valuation and margining are other constraints being seen in the market, with divergences in pricing methodologies between custodians, CCPs, and agent lenders, creating inconsistency and complicating substitution.
The only way is up
Looking forward, the ETF market is anticipated to grow to US$35 trillion in AUM by 2035, but is the market ready to handle this surge?
In short, the further development of current market infrastructure is essential in supporting this upward trajectory. Participants have highlighted a number of key areas to focus on, such as collateral and settlement infrastructure; transparency and data integration; liquidity and market-making capacity; as well as operational automation and technology.
鈥淓TFs have been moving towards a service model dominated by digital workflows for some time, where electronic messaging of data via APIs has become the norm, replacing manual processes and reducing human intervention,鈥 says Vena of Citi Investor Services.
But while service providers are ready for growth on the back of this infrastructure and technology, she believes there remains 鈥渓ingering concerns鈥 around the sufficiency of seed and custom baskets and whether there is enough support for those functions to go around.
In order to support the scale and complexity of the ETF market, Aldridge suggests a move of continued investment in not only technology and standardisation, but also education 鈥 all of which he believes is essential to ensure the securities finance ecosystem can fully capitalise on the expanding role of ETFs.
Focusing on scale, Howie explores how lendable ETF supply has grown by approximately 10鈥20 per cent YoY across major regions. He suggests that the global ETF market is advancing faster than infrastructure designed to support it.
He continues: 鈥淲hile liquidity and collateral frameworks have evolved, much of the industry still relies on broad, static haircut schedules that overlook ETF-level liquidity nuances 鈥 a blind spot that could amplify risk as product complexity and volume rise.鈥
Another suggestion in helping to improve the current infrastructure comes in the form of standardised labelling for ETFs. HSBC鈥檚 Boua explains that this can be used to describe ETFs鈥 legal form (e.g. ETF versus ETP versus ETN), and their investment mandate which can enable mapping of each ETF to risk mandates.
Concluding, Chessum states: 鈥淚n short, while ETF revenues in 2025 already highlight the market鈥檚 maturity, the infrastructure must continue to evolve at the same pace, embracing data transparency, automation, and cross-market standardisation, to fully support what is fast becoming one of the most dominant and interconnected asset classes in global finance.鈥
This growth has already been in evidence over the last 12 months.
Currently, ETF securities lending revenues are up 79.3 per cent year-over-year (YoY) to US$810 million, according to S&P Global Market Intelligence data. With average fees rising 41.5 per cent to 86 basis points and on-loan balances up 28 per cent to US$125 billion, this signals a great demand for ETF borrowing across the ecosystem.
The growth of active, semi-transparent, thematic, and fixed income ETFs is a trending topic, along with increased institutional adoption. In order to capitalise on this opportunity, Peggy Vena, head of ETF services at Citi Investor Services, says service providers must offer enhanced fund administration for complex ETF structures, advanced collateral management platforms, and sophisticated data analytics for risk insights.The ETF offers a blend of liquidity, transparency, and operational efficiency, which Justin Aldridge, head of Agency Lending at Fidelity Investments, believes aligns well with modern financing needs. More institutional investors hold ETFs, and subsequently include those assets in their lending programmes, according to Fidelity Agency Lending. Using ETFs for securities lending can increase liquidity and may improve the overall breadth of ownership.
He continues: 鈥淓TFs are increasingly used not only as lendable assets but also as collateral in repo and non-cash securities lending transactions. Their standardised structure and ability to trade intraday make them particularly attractive for managing short-term funding and risk.
鈥淎s market participants seek to optimise capital and collateral usage, ETFs 鈥 especially fixed income and large-cap equity ETFs 鈥 are emerging as preferred instruments due to their ease of valuation, diversification, and settlement reliability.鈥
An important factor impacting this collateral landscape is the move toward digital collateral mobility, which is accelerating with cross-ledger and tokenised collateral solutions now enabling intraday, interoperable collateral flows at scale. Jordan Howie, buy side Trading Services sales at J.P. Morgan, highlights how these developments are redefining what liquidity means in collateral terms.
鈥淭he opportunity, and the challenge, is governance; participants must recognise ETFs as a distinct collateral class, implementing per-ETF eligibility, haircut, and concentration frameworks to manage liquidity asymmetries,鈥 Howie comments. 鈥淭hose that integrate ETF financing into broader collateral and execution workflows will capture material balance-sheet and liquidity advantages in the years ahead.鈥
Providing further insights, Matt Chessum, executive director of equity analytic products at S&P Global Market Intelligence, says the increasing complexity of ETF structures is creating a virtuous cycle where securities lending becomes essential to their functioning, whether for hedging positions, optimising collateral management, or enhancing returns.
ETF managers, he explains, are using lending revenue to offset management fees, effectively lowering their total expense ratio and remaining competitive in a crowded marketplace.
鈥淭he market is clearly evolving toward more sophisticated ETF user cases for both yield enhancement and complex trading strategies, with securities lending becoming an increasingly integral component of ETF market efficiency rather than just an ancillary revenue stream,鈥 Chessum states.
Around the world
Traditionally known as the dominant market in the ETF world, the US faces a continued adoption of active ETFs, mutual fund conversions, derivatives-based ETFs, and digital asset ETFs 鈥 which is supporting the next leg of growth in the country.
However, global opportunities are expanding outside of this part of the world, with EMEA ETF revenue experiencing a 60.5 per cent YoY jump during Q1鈥換3 2025, while Asian ETFs were up 113.8 per cent for the same period, as revealed by S&P Global Market Intelligence.
Reviewing the market, Henri Boua, ETF advisory and execution, Markets & Securities Services at HSBC, says retail adoption and active ETFs are the main catalysts for the growth in Europe, while in Asia there are more varied reasons across different markets.
Taiwan (retail adoption, active ETFs), Australia (widespread adoption across retail and institutional, active ETFs), Japan (regulatory tailwind through the Nippon Individual Savings Account), and South Korea (retail adoption, leverage and inverse ETFs, thematic ETFs, active ETFs) are becoming major engines of growth.
Throughout 2025, demand from prime clients and prime brokers for European ETFs has continued to grow. Value on loan stands at circa US$9.5 billion, up 37 per cent YoY, compared to circa US$153 billion in the US, which represents a 21 per cent increase YoY.
Curtis Dutton, global head of trading, Agency Securities Lending & Liquidity Services at HSBC, says there is still significant room for expansion in Europe as central securities depository (CSD) infrastructure for clearing and settling ETF trades evolves, and ETF usage as a hedging tool develops.
In a record year, the global ETF AUM reached US$19 trillion with US$1.4 trillion of inflows as of September 2025. But what is driving this surge in ETF activity around the world?
There are a multitude of reasons for this, with market participants highlighting the nature of the ETF wrapper itself, the rise of active ETFs, a boost in investor confidence, as well as demand for flexibility and structural advantages, as key drivers.
The rise of active ETFs 鈥 now exceeding US$1.7 trillion in global AUM 鈥 has brought to the forefront numerous benefits, which is leading to additional borrow and lend demand. They offer flexibility and the potential alpha of active management within a liquid, exchange-traded structure. Active ETFs provide a more diverse set of holdings relative to indexed or passive products, and therefore 鈥 in theory at least 鈥 have the potential to generate better returns.
They provide a unique appeal in securities lending, according to Aldridge, and hold a dynamic mix of securities, including specials that may be in higher demand and harder to borrow. He adds: 鈥淭his differentiated supply can enhance lending opportunities, especially in markets where scarcity drives value. As active ETF issuance grows, securities finance participants are increasingly viewing them as a strategic source of lendable assets that combine alpha generation with operational efficiency.鈥
While they display many benefits, Dutton notes that active ETFs are 鈥渃urrently less attractive as a collateral tool鈥 because they can carry heavier discounts. Additionally, he pinpoints that an 鈥渦npredictable portfolio鈥 can make it more complicated to use the underlying assets in a liquidation event. Despite this, Dutton suggests that this unpredictability can make active ETFs a potentially successful lending product.
An increase in investor confidence sits hand-in-hand with the appeal of the ETF wrapper, which provides participants with transparency, liquidity, cost-effectiveness, and accessibility. Market participants also cite standardisation, price transparency, and ease of settlement as appealing aspects to both lenders and borrowers looking to streamline collateral mobility.
On the demand side, ETFs鈥 efficiency, transparency, and tax advantages continue to attract inflows, Howie explains. On the supply side, the proliferation of active and fixed income ETFs has expanded the universe of lendable, financing-eligible collateral.
ETF units鈥 fungibility allows for simpler sourcing, mobilisation, and reuse compared with traditional mutual fund shares or bespoke baskets, Howie adds. Meanwhile, strong secondary-market depth, supported by authorised participants and market makers, 鈥済ives repo desks confidence to price and fund these instruments efficiently鈥.
Mutual funds vs ETFs
Mutual funds are key participants in the securities lending market. With the ETF gaining traction, it is only natural to look at how the two compare.
ETFs and mutual funds share similarities 鈥 the biggest being that they both represent baskets of individual stocks or bonds. But while ETFs trade throughout the trading day at market prices, mutual funds are priced at the end of the trading day and are bought or sold based on their net asset value (NAV). As such, ETFs offer real-time pricing and the ability to execute trades quickly.
鈥淭he meteoric rise of ETFs in securities financing has fundamentally reshaped the landscape previously dominated by mutual funds and other traditional instruments,鈥 says Chessum.
As a result of this 鈥渞emarkable growth鈥, S&P Global Market Intelligence has moved to create a separate investment category specifically for ETFs, splitting them from mutual funds in its securities finance dataset.
While ETFs are gaining ground, Aldridge says mutual funds continue to serve important roles in long-term investment strategies, with both structures coexisting and serving distinct investor and operational needs. Sharing a similar outlook, Howie suggests ETFs are not replacing mutual funds outright, but redefining their relative roles within the market鈥檚 liquidity and financing structure.
He continues: 鈥淎s ETF markets deepen, particularly around fixed income and active strategies, their accessibility, liquidity, and collateral efficiency are drawing capital from traditional index and active mutual-fund mandates.
鈥淓TFs now routinely serve dual purposes 鈥 investment exposure and financing assets. For securities finance desks, that means an expanding, more tradable inventory that can be mobilised for funding or transformation.鈥
By contrast, mutual funds remain preferred where investors prioritise NAV execution, long-term horizons, or asset classes where intraday liquidity offers little incremental value, Howie explains. This divergence is visible in the data: ETF assets continue to grow at double-digit annual rates, while open-end mutual-fund flows have stagnated, or even turned negative in several regions. Mutual fund to ETF conversions are also rising each year, he adds, climbing from 15 in 2021, to 57 in 2024.
The result, according to Howie, is that ETFs increasingly underpin day-to-day market liquidity, while mutual funds hold 鈥減atient鈥 capital that anchors long-term investment strategies. 鈥淚n short, ETFs have become the operational backbone of liquidity and collateral mobilisation, while mutual funds are settling into a complementary, long-horizon role 鈥 together forming a more layered, efficient securities finance ecosystem,鈥 he confirms.
Concluding the discussion, Bill Mascaro, head of securities finance trading at Citi Investor Services, says: 鈥淪hare class approval has the potential to significantly increase ETFs鈥 constituent availability in the securities finance market, at the expense of mutual fund鈥檚 constituent availability, as investor interest realigns.
鈥淭here are some technical aspects that still need to be worked out, but this could trigger a broader shift in how securities are lent and under what parameters with implications to hold-backs to accommodate redemptions and non-qualified dividend income considerations.鈥
Battling barriers
While a promising future lies ahead for the ETF, it is not without barriers. In this respect, market participants highlight the need for ETF-specific eligibility frameworks with differentiated haircuts, concentration limits, and liquidity stress tests. Howie explains that while large, core equity and fixed income ETFs trade with deep liquidity, smaller or specialised funds can behave very differently under stress.
Mascaro notes: 鈥淲ithin a triparty account there is tailored eligibility criteria that exists on security level acceptance within an index or market-cap weighting, and this collateral specificity will likely remain a challenge for broader acceptance of ETFs moving forward.鈥
Further, participants seeking to utilise ETFs as collateral must navigate a landscape divided between two distinct classes of these instruments, explains Chessum. The first category comprises straightforward index trackers, predominantly holding equities or standard fixed income securities, which are widely accepted as collateral.
In contrast, the second category includes complex ETF structures, such as leveraged, inverse, or those utilising synthetic replication techniques, which, despite trading on exchanges like equities, present significant challenges as collateral.
These complex instruments often face regulatory scrutiny with higher haircut requirements across jurisdictions, encounter difficulties in accurate pricing during market volatility, and may experience substantial valuation fluctuations that undermine their reliability as collateral assets, according to Chessum. In addition, he believes many counterparty risk frameworks and legacy collateral management systems lack the sophistication to properly evaluate and process these more complex ETF structures.
It appears that the ETF market鈥檚 rapid growth demands stronger infrastructure to support its expanding role in securities financing. Aldridge notes that collateral management systems must evolve to handle ETF-specific requirements, such as daily NAV tracking, substitutions, and corporate actions, ensuring operational efficiency and risk control.
He continues: 鈥淪econdly, the liquidity and concentration of an ETF鈥檚 specific securities are factors that come into play when determining whether an ETF may be eligible as collateral. The less liquid, and less diversified, the less likely the ETF will be eligible.鈥
Valuation and margining are other constraints being seen in the market, with divergences in pricing methodologies between custodians, CCPs, and agent lenders, creating inconsistency and complicating substitution.
The only way is up
Looking forward, the ETF market is anticipated to grow to US$35 trillion in AUM by 2035, but is the market ready to handle this surge?
In short, the further development of current market infrastructure is essential in supporting this upward trajectory. Participants have highlighted a number of key areas to focus on, such as collateral and settlement infrastructure; transparency and data integration; liquidity and market-making capacity; as well as operational automation and technology.
鈥淓TFs have been moving towards a service model dominated by digital workflows for some time, where electronic messaging of data via APIs has become the norm, replacing manual processes and reducing human intervention,鈥 says Vena of Citi Investor Services.
But while service providers are ready for growth on the back of this infrastructure and technology, she believes there remains 鈥渓ingering concerns鈥 around the sufficiency of seed and custom baskets and whether there is enough support for those functions to go around.
In order to support the scale and complexity of the ETF market, Aldridge suggests a move of continued investment in not only technology and standardisation, but also education 鈥 all of which he believes is essential to ensure the securities finance ecosystem can fully capitalise on the expanding role of ETFs.
Focusing on scale, Howie explores how lendable ETF supply has grown by approximately 10鈥20 per cent YoY across major regions. He suggests that the global ETF market is advancing faster than infrastructure designed to support it.
He continues: 鈥淲hile liquidity and collateral frameworks have evolved, much of the industry still relies on broad, static haircut schedules that overlook ETF-level liquidity nuances 鈥 a blind spot that could amplify risk as product complexity and volume rise.鈥
Another suggestion in helping to improve the current infrastructure comes in the form of standardised labelling for ETFs. HSBC鈥檚 Boua explains that this can be used to describe ETFs鈥 legal form (e.g. ETF versus ETP versus ETN), and their investment mandate which can enable mapping of each ETF to risk mandates.
Concluding, Chessum states: 鈥淚n short, while ETF revenues in 2025 already highlight the market鈥檚 maturity, the infrastructure must continue to evolve at the same pace, embracing data transparency, automation, and cross-market standardisation, to fully support what is fast becoming one of the most dominant and interconnected asset classes in global finance.鈥
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities 麻豆影视传媒 Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities 麻豆影视传媒 Times
