European ETF Market Outlook 2022

The European ETF industry is heavily focused on CSDR this year as it tries to build on a record-breaking year in 2021, as well as the long-awaited advent of consolidated tape and data transparency on trades.

Bloomberg Intelligence research shows that ETF funds in Europe experienced $162 billion in inflows last year, bringing their total assets under management (AUM) to roughly $1.5 billion, led by rising demand from retail investors and a rise in the popularity of the ETF wrapper after the stress test in March 2020.

The European secondary market is still fragmented, despite the fact that there are no “major hazards in the ETF structure,” as stated by the International Organization of Securities Commissions (IOSCO) in 2017.

As founder and managing partner of Blackwater Search & Advisory, Michael O’Riordan succinctly put it: “In Europe, the ETF market has over 80 issuers operating across 30 exchanges in 25 countries, and what feels like an unlimited number of regulatory bodies”.

As a result, there are 13 distinct currencies available for trading and settlement, as well as several clearing agencies, various listing requirements for each exchange, and various operation models and country restrictions. True transparency is difficult to achieve since most deals are conducted over the counter (OTC), which, together with fragmentation, prevents the creation of a consolidated tape.

Even though discussions about a consolidated tape have been ongoing since MiFID II took effect in 2018, the European Commission increased its efforts to see its introduction at the end of the previous year.

A larger range of investors is expected to feel more confident after learning the whole liquidity picture of European ETFs, which may encourage them to use UCITS ETFs in Asia and Latin America rather than US-domiciled ones now.

Jim Goldie, head of ETF capital markets and indexed strategies for Invesco in EMEA, forecasted 2022 to be the year when significant moves toward its implementation may occur.

Goldie emphasized that although there is still more work to be done in this area and we do not expect a quick victory, this is something the industry will continue to work toward in 2018. We sincerely want to see a consolidated tape for ETPs, stocks, and bonds in the near future because it will significantly increase transparency and investor safety. 




The Central Securities Depositary Regime (CSDR), which takes effect in February of this year, is an additional effort to enhance the market structure.

The ETF sector has not completely evaluated the impact the CSDR mandate will have, according to Simon Barriball, ETP and portfolio trading, Europe, at Virtu Financial.

He claimed that despite having the greatest intentions, the upcoming regulations governing late payment fees might unintentionally cause investor spreads to increase.

Barriball stated that “all market participants would prefer to see a higher percentage of deals settle on their due value date.” The issue is how much they are willing to fork over in terms of the effect on trading spreads. Spreads will increase if market makers are required to cover inventory more quickly and maybe at a higher cost, such as by going direct to the primary market.

Barriball emphasized the need to choose the proper depositary when settling and make sure businesses consent to partial settlement to keep fines minimal.

According to him, the bulk of ETFs uses the ICSD settlement methodology, with Euroclear serving as the primary settlement depositary. “Since Euroclear does not provide auto partial, unlike CREST, managing partial settlement and minimizing late settlement fees across the ETF market would involve extra labor from all stakeholders.”

In spite of the “operational cost” for businesses, Goldie expressed optimism that CSDR will benefit the European ETF ecosystem.

“From the standpoint of market structure, CSDR will undoubtedly be one of the major focus areas of 2022, not just for ETFs but for equities and bonds as well.”

“When it is implemented next month, it will undoubtedly add to the operational load for many firms, but we are optimistic that it will eventually lead to a stronger settlement ecosystem for ETFs, stocks, and bonds, which will be advantageous to investors as a whole.”

Clearstream is attempting to alleviate the market’s existing opaqueness in Europe by disclosing information on who has ETFs.

This will help ETF issuers assess how investors are utilizing their ETFs, according to Allan Stewart, vice president of investment fund services at Clearstream.

“Issuers are largely unaware of where their ETFs are sold,” he claimed. We are attempting to profile the market because the UCITS ETF OTC market is so opaque. 


Fight for the second place 


To surpass BlackRock as Europe’s second-largest ETF provider early in 2019, DWS and Lyxor engaged in a competitive struggle. Lyxor was ahead of DWS after Société Générale bought ComStage, a line of ETFs from Commerzbank, but over the past two years, Lyxor has swept ahead.

As a result of Amundi’s acquisition of its French rival for €825 million last year, Lyxor and DWS will now have to battle it out with their combined forces.

Amundi has ambitious goals, and by 2025, it hopes to have increased its passive platform’s AUM by 50%. It will be interesting to see how DWS plans to address this, but over the next five years, ESG is likely to be a major battleground.