Evolution is an important theme and is central to the ongoing growth of ETFs. The first ETFs housed a single share class, passively tracking vanilla equity indexes and this was the status quo for many years.
Today, ETFs have evolved into active and smart beta strategies, holding virtually all asset classes, multi-currency, multi-share class, hedged, unhedged, accumulating and distributing.
Recent conversations have centred around ETFs holding alternative, real assets, tokenised versions of existing ETFs and leveraging distributed ledged technology (DLT) which enables 24/7 trading.
As with the evolution of ETFs, CACEIS support services have also needed to evolve. Vanilla, index tracking ETFs were supported with our standard, fund accounting, transfer agency, custody and depository models. Today, strategies which use securities lending, currency overlay, digital assets and derivatives require an evolved and much more complex range of services.
Securities Lending
Securities lending is an effective tool used by ETF issuers to generate additional returns for investors and help reduce management fees. Securities which are in high demand can generate especially attractive earnings. ETFs have been engaging in securities lending for many years, and it is now commonplace in the market. Issuers can leverage a lending desk that handles the processes; however, most use an agent lender like CACEIS to lend on their behalf and is in charge of the negotiation according to the criteria defined by the client.
Whilst there are nuances in the services depending on the solution the issuer selects, CACEIS’ service includes the management of all operational aspects: middle-to-back-office negotiation, receipt and delivery of assets, collateral management, invoicing, corporate actions, client and regulatory reporting, providing maximum security to issuers while freeing them from the risk of CSDR penalties.
Currency Overlay
Hedged ETFs have been available since the early 90’s and with the introduction of ETF share classes it acted like a catalyst for the evolution of hedged ETFs. Today, hedged ETF share classes are commonplace and have gathered considerable assets. According to ETFBook as at end of July 2025, there are 554 hedged ETFs in Europe with $263bn in assets. Issuers can manage hedging in-house or outsource it and thus free-up resources to focus on their core strengths.
CACEIS offers a fully outsourced currency overlay solution which is available on either a custody or standalone basis. Three customisable hedging strategies are supported through highly automated operating processes and data connectivity.
- Share class hedging - minimises investors’ currency risk at share class level
- Portfolio hedging - manages portfolio’s currency risk exposure, at overall fund or specific share class level
- Benchmark hedging - hedges the portfolio to specific benchmark currency weights
The goal is to allow managers to focus on their core strengths by automating complex hedging processes, with complete transparency on FX execution through Best Execution, Transaction Cost Analysis reporting and dynamic oversight provided through a suite of data visualisation tools.
Basket Execution
Eamonn O'Callaghan
Group Product Manager
ETFs differ to other fund types in that when the portfolio manager executes basket trades due to primary market activity, the arising costs are charged to the authorised participants for payment. This process can become especially complex if the issuer is applying actual costs / transaction cost pass through to the primary market orders.
Some issuers prefer to outsource basket execution to a third party who have a more robust infrastructure in place to handle the complexities.
CACEIS has developed comprehensive agency execution services to streamline execution from front to back office. A wide range of asset types are supported including, equities, bonds, ETFs and listed derivatives. Given that CACEIS has no investment bank affiliation, we can operate without conflicts of interest. In addition to execution services, CACEIS offers clearing of listed derivatives (futures and options on all types of underlying equities, indices, dividends, rates, FX, commodities, etc.) on more than 60 derivative markets globally.
Digital assets
Investor interest in Exchange Traded Products (ETPs) offering exposure to digital assets has grown significantly over recent years. By July 2025, assets in cryptocurrency ETPs in the US have grown to more than $175bn.
Against this backdrop, service providers’ offerings needed to evolve to support digital assets, with complex technologies and processes required to handle the unique characteristics which processing and holding cryptocurrency presents.
CACEIS can provide secure digital assets custody solutions and blockchain-based fund distribution services to ETPs. Secure interfaces are in place with Bitcoin, Ethereum and Polygon blockchains. Clients benefit from full transparency and real-time information on their digital wallet. CACEIS safekeeps private keys and can perform digital asset transfers on behalf of clients.
OTC middle office services
An increasing number of ETFs are incorporating derivatives into their investment strategies, which are commonly known as buffer ETFs. These aim to limit downside risk and so have become popular with investors nearing retirement or those seeking to mitigate against market turbulence. The percentage of synthetic ETFs in the overall market has remained steady at circa 15% but running these strategies presents complexities for issuers such as managing collateral. Many issuers have taken a strategic decision to outsource non-core aspects of their business, such as back or middle office functions, to reduce technology investment, staff-related costs, and ultimately improve the quality of service they provide their investors.
CACEIS has developed a flexible middle-office outsourcing solution which is available on a modular basis that enables issuers to outsource all or part of the post-execution activities. Functions which can be outsourced to CACEIS include OTC derivative servicing (valuation, trade processing and cash settlement), EMIR reporting and collateral management. Today, strategies which use securities lending, currency overlay, digital assets and derivatives require an evolved and much more complex range of services offered.
CACEIS: A European Leader Serving the ETF community
CACEIS administers more than €180bn in ETF assets domiciled in Ireland, Luxembourg and France making us the 4th largest ETF service provider in Europe. We have designed our client centric service offering with a follow the sun model and data anytime, anywhere models. To handle the complexities which ETFs present, we have the technical, operational and intellectual expertise in place to support issuers in this increasingly complex market.
