Reshaping servicing models
29 Apr 2026
Zarah Choudhary speaks with Eamonn O’Callaghan, Ireland-based global head of ETF Product at CACEIS, about the forces driving the expansion of ETFs and how digital assets and tokenisation could influence the future of the ETF ecosystem
Image: CACEIS
The global exchange traded fund (ETF) market has undergone rapid expansion over the past decade, transforming both investment strategies and the infrastructure required to support them. As assets continue to grow, service providers are adapting their operational models, technology platforms, and expertise to keep pace with a market that is becoming larger and more complex. Eamonn O’Callaghan, Ireland-based global head of ETF Product at CACEIS, says several structural factors have contributed to the growth of the ETF market across regions.
“There are a number of drivers behind the expansion of ETFs,” he explains. “One of the most notable developments has been the growth of active ETFs. A few years ago they represented less than two per cent of the market, but that figure has now grown to around six or seven per cent depending on the region.”
While still a relatively small segment compared with passive strategies, the rise of active ETFs is contributing to broader market momentum. At the same time, O’Callaghan points to a shift in investor behaviour, with capital increasingly moving away from traditional mutual funds towards ETF structures.
“We’ve seen a broad movement from active mutual funds into ETFs, both passive and active. Investor surveys consistently show that when investors reallocate capital, many are moving funds from active mutual funds into the ETF wrapper.”
This trend has been particularly visible in the US, where asset managers have increasingly converted mutual fund products into ETFs.
“There has been a significant number of mutual fund-to-ETF conversions in the US in recent years,” he observes. “We haven’t seen the same level of conversions in Europe, but the shift in the US has certainly contributed to ETF growth globally.”
Retail participation is another factor shaping the market, particularly in Europe where adoption is still developing.
“In the US, retail investors have been active ETF users for many years,” O’Callaghan notes. “In Europe the retail segment is still evolving, but we’re seeing increased adoption as investor education improves and self-directed investment grows. Germany is a strong example of this trend, and similar patterns are beginning to emerge in other European markets.”
Ultimately, however, the enduring appeal of ETFs lies in the core characteristics of the structure.
“The ETF wrapper offers several key benefits: liquidity, relatively low cost, transparency, and accessibility,” he says. “Those attributes resonate strongly with investors across different segments.”
Tax efficiency also plays a role in the European market. Irish-domiciled ETFs benefit from favourable tax arrangements when investing in US equities, which has helped position Ireland as a key ETF hub.
“An Irish-domiciled ETF can benefit from a reduced withholding tax rate of 15 per cent on dividends from US equities, compared with the standard 30 per cent rate,” O’Callaghan explains. “That efficiency is one of the reasons why roughly 75 per cent of all European ETFs are domiciled in Ireland.”
Operational implications for asset servicers
As the ETF market expands, asset servicers and custodians are adapting their operational infrastructure to support the scale and complexity of the products.
Supporting ETFs requires specialised capabilities compared with traditional mutual funds, particularly in areas such as order management and portfolio transparency. “One example is the portfolio composition file, or PCF,” O’Callaghan notes. “This file is central to the ETF ecosystem because it provides authorised participants and market makers with the information needed to price and trade ETF shares.”
The PCF must be produced prior to market opening, creating tight operational timelines for administrators.
“You need the ability to calculate the net asset value on trade date and produce the PCF overnight,” he explains.
“If that process isn’t completed correctly and on time, market makers cannot price the ETF on exchange.”
Order management also differs from traditional fund structures.
“ETFs involve specific order types, such as directed cash orders or custom orders, which are not present in the mutual fund world.
“That means administrators need specialised order-entry portals and systems capable of supporting those requirements.”
Over time, the rapid expansion of ETF assets has forced service providers to rethink their operational models.
“When ETFs first launched in Europe around two decades ago, the systems supporting them weren’t necessarily built for the scale we see today,” O’Callaghan says.
“As assets have grown, service providers have had to evolve their technology, reduce manual processes and focus on automation and straight-through processing.”
The products themselves have also become more complex.
“Originally, ETFs were relatively simple passive strategies, often with a single share class and currency. Today the market includes a much broader range of strategies and asset classes.”
This evolution has increased the need for specialist expertise within servicing organisations.
“As issuers launch more sophisticated products, service providers need deeper technical expertise to support those structures,” he adds.
Europe and the US: Structural differences
Despite the global growth of ETFs, the market structure in Europe differs significantly from that of the US.
“The US ETF market is much more mature and significantly larger — roughly four times the size of the European market,” O’Callaghan says.
Retail participation is also more pronounced in the US, supported by long-standing investment structures such as retirement savings plans.
“In the US there are far higher levels of self-directed investment, which naturally feeds into ETF adoption.”
Europe, by contrast, presents a fragmented landscape shaped by multiple jurisdictions and exchanges.
“Europe consists of 27 countries, each with its own exchange infrastructure. When launching an ETF in Europe, issuers need a nuanced sales and distribution strategy that reflects those regional differences.”
Trading mechanics also differ between the two markets.
“In the US, the vast majority of ETF trades are conducted ‘in-kind’, where authorised participants deliver a basket of securities in exchange for ETF shares,” O’Callaghan explains.
“In Europe the situation is almost the opposite — most trades are conducted in cash rather than through in-kind transfers.”
Structural differences have also existed around share classes. Europe has long supported multi-share-class ETFs, whereas US products historically operated under a single share class model due to patent restrictions that have only recently expired.
Technology investment and scaling for growth
With ETF assets continuing to rise, infrastructure investment has become a priority for service providers. “ETF assets in Europe currently stand at around €3 trillion,” O’Callaghan says.
“There’s a commonly cited view that ETF assets double roughly every five years.”
If that trajectory continues, European ETF assets could exceed €6 trillion by the early 2030s. “That level of growth has significant implications for everyone servicing ETFs,” he explains. “If your business could be twice as large in five years, you cannot rely on manual processes. Systems must be scalable and automated.”
Technology integration across the ETF ecosystem is becoming increasingly important.
“We’re seeing greater connectivity between authorised participant systems, administrator systems and issuer systems,” O’Callaghan observes. “Technologies such as APIs and FIX messaging allow orders and data to move automatically between those systems.”
Issuers are also demanding more sophisticated reporting capabilities. “Instead of reviewing static reports, issuers increasingly want real-time dashboards that allow them to monitor activity across their ETF platforms.”
Active ETFs and product innovation
Innovation within the ETF market is also influencing servicing requirements.
“Active ETFs are an important development, but operationally the difference between active and passive ETFs is not as large as people sometimes expect,” O’Callaghan says. However, some adjustments are required when active strategies involve more complex instruments.
“We are seeing greater use of derivatives, including swaps and options, within some active ETFs.
“That requires additional operational considerations to ensure those instruments are handled correctly.”
He describes the active ETF market as existing along a spectrum.
“At one end you have high-conviction active strategies, and at the other you have what might be described as ‘index-plus’ products — essentially index strategies with an active overlay.”
For service providers, understanding each issuer’s investment strategy remains central to designing the appropriate servicing model.
Digital assets and tokenisation
Looking further ahead, digital assets and tokenisation are beginning to feature in conversations about the future of ETFs.
“There appears to be a growing investor appetite for digital assets as an asset class,” O’Callaghan observes. “Several large asset managers have launched products with digital asset exposure.”
At present, these exposures are more commonly found in exchange traded notes (ETNs) rather than ETFs.
“We are already seeing digital assets used as the underlying for exchange traded notes,” he notes.
Regulation will ultimately determine how quickly digital assets become integrated into ETF structures.
“Some regulators have taken the view that digital assets are not appropriate for retail investors,” O’Callaghan adds.
“For ETFs to hold digital assets directly, further regulatory developments would likely be required.”
Tokenisation, however, is attracting increasing interest across the asset management industry.
“There has been a huge amount of discussion about tokenisation over the past year,” he says.
“Many asset managers are seriously considering how they might issue tokenised products.”
In the longer term, O’Callaghan believes traditional fund structures and tokenised products could coexist.
“It’s possible to imagine a future where an asset manager offers a mutual fund, an ETF, and a tokenised version of the same strategy.”
As ETF assets continue to grow and innovation accelerates, the demands placed on asset servicing infrastructure are likely to intensify.
“With the scale of growth we’re seeing, every participant in the ecosystem needs to ensure their systems and processes are ready for the next phase of expansion.”
“There are a number of drivers behind the expansion of ETFs,” he explains. “One of the most notable developments has been the growth of active ETFs. A few years ago they represented less than two per cent of the market, but that figure has now grown to around six or seven per cent depending on the region.”
While still a relatively small segment compared with passive strategies, the rise of active ETFs is contributing to broader market momentum. At the same time, O’Callaghan points to a shift in investor behaviour, with capital increasingly moving away from traditional mutual funds towards ETF structures.
“We’ve seen a broad movement from active mutual funds into ETFs, both passive and active. Investor surveys consistently show that when investors reallocate capital, many are moving funds from active mutual funds into the ETF wrapper.”
This trend has been particularly visible in the US, where asset managers have increasingly converted mutual fund products into ETFs.
“There has been a significant number of mutual fund-to-ETF conversions in the US in recent years,” he observes. “We haven’t seen the same level of conversions in Europe, but the shift in the US has certainly contributed to ETF growth globally.”
Retail participation is another factor shaping the market, particularly in Europe where adoption is still developing.
“In the US, retail investors have been active ETF users for many years,” O’Callaghan notes. “In Europe the retail segment is still evolving, but we’re seeing increased adoption as investor education improves and self-directed investment grows. Germany is a strong example of this trend, and similar patterns are beginning to emerge in other European markets.”
Ultimately, however, the enduring appeal of ETFs lies in the core characteristics of the structure.
“The ETF wrapper offers several key benefits: liquidity, relatively low cost, transparency, and accessibility,” he says. “Those attributes resonate strongly with investors across different segments.”
Tax efficiency also plays a role in the European market. Irish-domiciled ETFs benefit from favourable tax arrangements when investing in US equities, which has helped position Ireland as a key ETF hub.
“An Irish-domiciled ETF can benefit from a reduced withholding tax rate of 15 per cent on dividends from US equities, compared with the standard 30 per cent rate,” O’Callaghan explains. “That efficiency is one of the reasons why roughly 75 per cent of all European ETFs are domiciled in Ireland.”
Operational implications for asset servicers
As the ETF market expands, asset servicers and custodians are adapting their operational infrastructure to support the scale and complexity of the products.
Supporting ETFs requires specialised capabilities compared with traditional mutual funds, particularly in areas such as order management and portfolio transparency. “One example is the portfolio composition file, or PCF,” O’Callaghan notes. “This file is central to the ETF ecosystem because it provides authorised participants and market makers with the information needed to price and trade ETF shares.”
The PCF must be produced prior to market opening, creating tight operational timelines for administrators.
“You need the ability to calculate the net asset value on trade date and produce the PCF overnight,” he explains.
“If that process isn’t completed correctly and on time, market makers cannot price the ETF on exchange.”
Order management also differs from traditional fund structures.
“ETFs involve specific order types, such as directed cash orders or custom orders, which are not present in the mutual fund world.
“That means administrators need specialised order-entry portals and systems capable of supporting those requirements.”
Over time, the rapid expansion of ETF assets has forced service providers to rethink their operational models.
“When ETFs first launched in Europe around two decades ago, the systems supporting them weren’t necessarily built for the scale we see today,” O’Callaghan says.
“As assets have grown, service providers have had to evolve their technology, reduce manual processes and focus on automation and straight-through processing.”
The products themselves have also become more complex.
“Originally, ETFs were relatively simple passive strategies, often with a single share class and currency. Today the market includes a much broader range of strategies and asset classes.”
This evolution has increased the need for specialist expertise within servicing organisations.
“As issuers launch more sophisticated products, service providers need deeper technical expertise to support those structures,” he adds.
Europe and the US: Structural differences
Despite the global growth of ETFs, the market structure in Europe differs significantly from that of the US.
“The US ETF market is much more mature and significantly larger — roughly four times the size of the European market,” O’Callaghan says.
Retail participation is also more pronounced in the US, supported by long-standing investment structures such as retirement savings plans.
“In the US there are far higher levels of self-directed investment, which naturally feeds into ETF adoption.”
Europe, by contrast, presents a fragmented landscape shaped by multiple jurisdictions and exchanges.
“Europe consists of 27 countries, each with its own exchange infrastructure. When launching an ETF in Europe, issuers need a nuanced sales and distribution strategy that reflects those regional differences.”
Trading mechanics also differ between the two markets.
“In the US, the vast majority of ETF trades are conducted ‘in-kind’, where authorised participants deliver a basket of securities in exchange for ETF shares,” O’Callaghan explains.
“In Europe the situation is almost the opposite — most trades are conducted in cash rather than through in-kind transfers.”
Structural differences have also existed around share classes. Europe has long supported multi-share-class ETFs, whereas US products historically operated under a single share class model due to patent restrictions that have only recently expired.
Technology investment and scaling for growth
With ETF assets continuing to rise, infrastructure investment has become a priority for service providers. “ETF assets in Europe currently stand at around €3 trillion,” O’Callaghan says.
“There’s a commonly cited view that ETF assets double roughly every five years.”
If that trajectory continues, European ETF assets could exceed €6 trillion by the early 2030s. “That level of growth has significant implications for everyone servicing ETFs,” he explains. “If your business could be twice as large in five years, you cannot rely on manual processes. Systems must be scalable and automated.”
Technology integration across the ETF ecosystem is becoming increasingly important.
“We’re seeing greater connectivity between authorised participant systems, administrator systems and issuer systems,” O’Callaghan observes. “Technologies such as APIs and FIX messaging allow orders and data to move automatically between those systems.”
Issuers are also demanding more sophisticated reporting capabilities. “Instead of reviewing static reports, issuers increasingly want real-time dashboards that allow them to monitor activity across their ETF platforms.”
Active ETFs and product innovation
Innovation within the ETF market is also influencing servicing requirements.
“Active ETFs are an important development, but operationally the difference between active and passive ETFs is not as large as people sometimes expect,” O’Callaghan says. However, some adjustments are required when active strategies involve more complex instruments.
“We are seeing greater use of derivatives, including swaps and options, within some active ETFs.
“That requires additional operational considerations to ensure those instruments are handled correctly.”
He describes the active ETF market as existing along a spectrum.
“At one end you have high-conviction active strategies, and at the other you have what might be described as ‘index-plus’ products — essentially index strategies with an active overlay.”
For service providers, understanding each issuer’s investment strategy remains central to designing the appropriate servicing model.
Digital assets and tokenisation
Looking further ahead, digital assets and tokenisation are beginning to feature in conversations about the future of ETFs.
“There appears to be a growing investor appetite for digital assets as an asset class,” O’Callaghan observes. “Several large asset managers have launched products with digital asset exposure.”
At present, these exposures are more commonly found in exchange traded notes (ETNs) rather than ETFs.
“We are already seeing digital assets used as the underlying for exchange traded notes,” he notes.
Regulation will ultimately determine how quickly digital assets become integrated into ETF structures.
“Some regulators have taken the view that digital assets are not appropriate for retail investors,” O’Callaghan adds.
“For ETFs to hold digital assets directly, further regulatory developments would likely be required.”
Tokenisation, however, is attracting increasing interest across the asset management industry.
“There has been a huge amount of discussion about tokenisation over the past year,” he says.
“Many asset managers are seriously considering how they might issue tokenised products.”
In the longer term, O’Callaghan believes traditional fund structures and tokenised products could coexist.
“It’s possible to imagine a future where an asset manager offers a mutual fund, an ETF, and a tokenised version of the same strategy.”
As ETF assets continue to grow and innovation accelerates, the demands placed on asset servicing infrastructure are likely to intensify.
“With the scale of growth we’re seeing, every participant in the ecosystem needs to ensure their systems and processes are ready for the next phase of expansion.”
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