Asset flows into exchange-traded funds (ETFs) this year have again broken through the $1 trillion barrier at record speed, underscoring their sustained popularity with investors. With ETFs continuing to flourish, it is critical that the technology available to market participants can handle ongoing elevated volumes as well as the industry’s ever-more complex needs.
Technology has long been central to the development of the ETF market but as the latter continues to evolve, it is essential that the hardware and software can not only keep pace with its evolution but also help to shape the future of ETF innovation.
As such, the risk to ETF providers of not keeping up with the latest technology is high; failing to do so could constrain scalability, slow down analysis and decision making, and potentially lead to competitive disadvantages. It is vital that market participants partner with proven tech innovators and providers to ensure the delivery of optimal, efficient service in support of all the real-time demands of ETFs.
Closing the Gap in Front Office Efficiency
Historically, the majority of innovation in the ETF tech stack has been developed in support of back and middle-office functions, with a focus on workflow management, risk management and oversight among other key tasks.
Solutions enabling the front office to perform more efficiently have been slower to gain ground. This is despite technology’s crucial role in cutting the time investment managers devote to operational tasks, allowing them to concentrate on strategy, product development and portfolio construction — each vital to driving performance.
Jim Holleran, Senior Director and Head of ETF Product, said:
With demand for ETFs continuing to grow rapidly, we are focused on getting ahead of our clients’ needs and helping them to gain an edge in the
marketplace.
Next Generation Front Office Solutions Complete the ETF Picture
Driven by client demand and the imperative to create a more seamless experience for market participants, BNY has shaped its ETF technology strategy to lead in overlooked areas — particularly in front-office servicing — positioning itself as a pioneer in addressing emerging operational challenges. The firm recently launched a suite of three products designed to meet a number of core needs for front-office ETF teams. The new software delivered modernized basket construction technology to make the creation and management of ETF baskets more efficient. The capability is exception-driven, allowing baskets to be created and approved on their own, assuming certain parameters and control processes pass the test. In another year with record inflows and launches, this scale is vital to the sustainability of the ETF operating model. Additionally, the system provides online access to the information at client’s fingertips for oversight and research.
"Recognizing that a granular, 360-degree view of asset exposure offers a strategic advantage to market makers, we actively explored how best to deliver this capability. The result is a set of integrated look-through analytics designed to enhance transparency and empower more informed decision-making,” explained Holleran. This tool allows users to break down derivative positions into their underlying exposures and consolidates all necessary market-making data into a single report.
With the increasing need to access data and information quicky, BNY also developed a unified capital markets infrastructure: a white-labeled, issuer-branded central hub that brings together all relevant information and allows consumers to combine standardized data feeds with tools that can be customized for individual client preference.
Each of these services solves a specific industry challenge and reduces friction for market participants, making it easier for them to do their jobs.
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Client Collaboration Fuels ETF Innovation
“We want to make sure we are always listening to clients and gathering feedback from the ETF ecosystem. It was clear to us that scaling ETF front office has undoubtedly been a pain point. Everyone is trying to learn how to perform these tasks in the most efficient way. This new platform seeks to address that,” said Holleran.
To maximize the benefits, ETF market participants and practitioners may also find it beneficial to select one provider to fulfil all their tech services. Working closely in this way ensures that the provider understands the specific needs of the client and can evolve tailored solutions that meet their requirements.
This kind of innovation — offering look-through analytics and a white-labeled ETF capital markets infrastructure — is going to be central to the ongoing success and growth of the investment structure.
Bob Humbert, BNY Managing Director, Global Product Head of ETFs, Registered Funds and Alternative said:
Truly effective and impactful tools are born from collaboration. Client involvement isn’t just helpful, it’s essential to shaping solutions that reflect real-world needs and drive meaningful
progress.
Registered Funds and Alternatives. This client-led mindset led to the development of BNY’s now industry-leading ETX platform, an ultra-transparent user portal which connects market participants to ETFs at any point in the lifecycle and strengthens the broader ETF ecosystem.
BNY worked with clients to design and develop the ETX platform to address the evolving challenges of an ETF manager, particularly to help greatly reduce complexity in the front-office by providing more customizable features via API and offering access to the platform externally through the client gateway, another request from its client base. The result is a workflow which enables portfolio managers and support staff to fully focus on key objectives — to manage existing strategies more efficiently, generate ideas for new best-in-class ETF products and better serve liquidity providers and end investors.
“For us at BNY, innovation and responsiveness to client demand go hand in hand. Our ambition is to remain at the forefront of industry innovation, contributing to key developments across the ETF ecosystem,” concluded Humbert.