Exchange-traded flexibilities

The main challenge is developing a solution that is both flexible and scalable that can support ETF managers across various regions and asset classes, says Dominic Crowe of Citi

What makes the needs of ETF asset managers unique? What kind of challenges do ETFs pose for service providers?

Every asset manager is unique, but in general there are nuances specific to exchange-traded funds (ETFs) that must be taken into account. From a service provider perspective, the main challenge is developing a solution that is both flexible and scalable that can support ETF managers across various regions and asset classes.

The one point that I would highlight is related to how new ETF shares are created via in-kind baskets. This feature of an ETF requires infrastructure that an ETF asset manager can either build or outsource to a service provider. There are certain cost advantages to leveraging the infrastructure and scale of a service provider. Following the global financial crisis, asset managers have come under extreme pressure to lower fees. This is evidenced by the large asset flows to lower cost products such as ETFs. Leveraging a service provider to perform ETF-specific functions gives ETF asset managers the ability to better manage operating costs while focusing on their core competencies.

How important, and how easy, is it to find people with specific expertise to service ETFs properly?

The ETF industry is still relatively immature, which makes it difficult to find folks that have five, 10 or more years of experience. As firms look to launch their ETF platform, it’s imperative to find seasoned professionals with prior experience before launching any product. Once the infrastructure has been established it becomes easier to source candidates that have general fund services experience. Having said that, I think the ETF industry affords tremendous opportunity for individuals that are looking to learn and join a dynamic industry that is growing at a rapid pace.

What kind of technology is required? Has the evolution of fintech made ETF servicing more efficient?

In addition to the core platforms required to support a traditional asset manager, ETFs require significant development to support the creation of ETF shares via in-kind baskets. The challenge with the technology is that it must be integrated with the existing core platforms and it’s difficult to implement a third-party solution. Our understanding is that most, if not all, service providers have developed their ETF solution in-house. This evolution has resulted in inconsistent capabilities. As ETF asset managers perform their due diligence, it’s important that they look under the hood to insure the vendor’s solution is scalable and customisable.

The evolution of financial technology has and will continue to affect the evolution of ETFs. Innovations will continue: technology will affect ETF product construction, trading and back office processing. The implementation of robotics, machine intelligence, data and analytics will be game changers for the entire investment lifecycle. Citi is committed to implementing these technologies and is making significant investments. We have established various fintech labs across the globe to drive our technology evolution.

Are you seeing an increase in the use of ETFs? Why, and is this putting a strain on service providers?

At the end of Q1 2017, ETFs and other exchanged-traded products registered record inflows, lifting global assets under management to $3.9 trillion. Our expectation is that investor preference for lower cost investment products will continue, which will greatly benefit ETFs. We continue to see an increase use across all investor segments. Specifically, we expect financial advisers, online platforms and retail investors to lead the global demand over the coming years.

As a service provider, we are excited about the continued success and development of the ETF product.

As the product continues to develop, it’s imperative that we continue to invest in our ETF platform to insure its market leading and scalable. Asset managers rightly expect seamless processing irrespective of volumes and we strive to deliver on that promise.

The latest features from Asset Servicing Times
With the ratification of the final regulatory technical standards of SFTR imminent, market participants should begin to assess where to apply internal resource, and where to take advantage of existing processes. Pirum’s Duncan Carpenter outlines the scope, and potential impact of SFTR on the securities lending industry both within, and external to the EU
As technology developments shape the world around them, financial services firms are starting to adapt. This year’s Sibos conference outlined where the industry is settling in, and where there are still milestones to pass
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Rocky Martinez considers how AI can help improve post-trade processes, and how SmartStream’s new reconciliations solution is moving a step in the right direction towards helping firms keep costs at sustainable levels
New regulations, new competition and new cost pressures mean custodians and sub-custodians have more balls in the air than ever before
Mark Aldous, head of managed services for Delta Capita, discusses product governance and the need for more cooperation between manufacturers and distributors before the 3 January 2018
The past decade has seen significant change in securities services, but some challenges lead to lessons learnt, says Deutsche Bank’s Satvinder Singh
Artificial intelligence is already a reality in daily life, and it has a place in financial services, says Matt Davey of Societe Generale Securities Services
As technology has advanced, so too has the threat of cyberattack, and if financial services firms put a foot wrong, they stand to lose more than money
View features section
Country profiles
The latest country profiles from Asset Servicing Times
The Asian market may be improving on the harmonisation front, but the situation is still far from ideal. Experts discuss what there is still left to do
Brazil is hogging the limelight from its South American neighbours. But, although reforms are in full swing, there is still work to be done
Securities Lending Times

Visit our sister site
for all the latest securities lending news and analysis
No nation is an island, and the Polish CSD has post-trade services to cater to all of Central and Eastern Europe, says KDPW’s Iwona Sroka
In a region as geographically, culturally and economically diverse as Asia, funds passports have a tricky road ahead if they’re to redefine the industry
Amid cross-border restrictions and tightened belts, Luxembourg’s kingdom of real estate investment won’t be crumbling any time soon
The Chinese market has taken a knock to its confidence, but despite its size, it is still merely an emerging market, and must take these setbacks in its stride
Rich in sunshine, cork hats and tired clichés, Australia’s funds industry doesn’t buck the trend, boasting record levels of assets under custody
As the Saudi Arabian stock exchange finally opens its doors to foreign investments, the influx from abroad will be in baby steps, not leaps and bounds
View country profiles section
The latest interviews from Asset Servicing Times
The UK’s pensions industry is facing challenges from all angles, but KAS Bank’s cost transparency dashboard is here to lend a helping hand, says Pat Sharman
Real Estate Investment Times

Visit our sister site
for all the latest real estate investment news
View interviews section