News came over the summer weeks of the launch of HSBC’s ETF Platform Solutions, and its partnership with Calastone, to provide what it describes as a next-generation ETF Order Management system.
HSBC wrote that using Calastone’s cloud-based Distributed Market Infrastructure (DMI), the new ETF Order Management system is designed to deliver real-time processing and monitoring capabilities to ETF issuers throughout the ETF creation and redemption life cycle.
Calastone’s Chief Commercial Officer, Brian Godins explains that this is just the first step for the firm into the ETF world. “What is key to me when I look at Calastone is the client being at the centre of what we do – the mission has always been to reduce the complexity and drive out risk and cost for its participants.”
Until now, that has largely been within the mutual fund industry which he says has an ability to deliver greater value to the end investor. “So, throughout the life cycle of a mutual fund, through from the asset managers, to distributors, platforms and asset servicers, we look to remove friction and enable greater value to the end investor.”
The challenge for Calastone, he says, was how to make that ethos global across fund trading, settlement, reporting and dividend processing as simple as possible through connectivity and translation services to make those parts talk to each other.
The mutual fund will be 100 years old next year and Godins says that it is time to take its infrastructure to the next evolution.
“We support over 40,000 trading links for our clients that allow them to communicate with each other and make the end-to-end order flow seamless.”
The firm has 3,800 plus clients supporting 54 markets globally and GBP250 billion in trading value per month.
“What is particularly interesting is that the mutual fund industry has grown significantly over the years and what we have seen is the incredible growth of ETFs in the recent period, with a PwC projection that the industry will have USD15-18 trillion in assets by 2027,” Godins says.
“The opportunities are there for us.”
The firm’s Distributed Market Infrastructure (DMI) is the foundation of all its activities, leveraging Distributed Ledger Technology (DLT) amongst other technologies, and ETFs will be increasingly joining their mutual fund cousins to digitalise the fund distribution, administration and issuance processes, Godins says.
“Technology like DLT has driven an expressive way of thinking about how you evolve your products,” he says. “It takes the shackles off what technically used to be a barrier to entry and is now an enabler.”
Product development will continue to pivot on ETFs and the tokenisation of collective investment vehicles or digital investments.
“The end state of the evolution is a more tokenised manner in which collective investments operate and how we apply these new technologies, including DLT, at all levels of the life cycle of a fund; from fund distribution through to administration and the issuance process.
“This is a fundamental transformation of the mutual fund industry, and you could argue that ETFs are almost a pseudo digitised version of that end goal of a tokenised fund.”
Godins observes that ETFs are changing today from the concept of plain, passive vanilla index replicators to thematic, active, synthetic or cryptocurrency-based products. “We see that working in lock step across both tokenisation and ETF conversations,” he says.
The latest announcement with HSBC is, he says, a good reflection of how the firm partners and journeys with its clients. “We have a long relationship with our clients, including HSBC, in mutual funds. Interestingly, that trusted relationship resulted in conversations around what were the opportunities for ETFs powered by DMI and our DLT enabled platforms. The timing meant that a strong and strategic relationship could be formed as to what we can do for them.”
Godins details the six pieces of the ‘Calastone Pursuits’ pie (apologies to Trivial Pursuits) as ETF standing data; order capture; order management; settlement; reconciliations and distributions.
“We reflect what is needed by a core participant and the client can then pick and choose across the pie,” he says. “The key is to build a platform that is scalable and extensible, and we are very conscious that every geography has different nuances and expectations from in kind capabilities in the US to different nuances across Europe and APAC.”
“It’s worth referencing that in the ETF world, the focus for Calastone is providing solutions for the primary market processes and flows, as opposed to the secondary market. Godins says. “We are able to build the microservices required at pace based on the multi-year investment we have already made in DMI, so our time to market is pretty impressive, and getting faster.”
Godins also believes that Calastone benefits from having a unique network and community on their existing platforms and that being slightly smaller enables them to be nimble in deploying their offering.
The firm has a strong client base globally, and from a product proposition continues to develop its European and Asia Pacific ETF capabilities as well as working to ‘articulate the ETF deliverables for the US market’, he says.
“The great thing about what we have done in mutual funds, having created that community and marketplace, is that it has opened the door for ETF, Digital Investments and other product conversations, solidifying and growing those trusted relationships and partnerships with our clients.”