Why Post-Trade Matters in Europe’s ETF Growth

Behind the rapid rise of ETFs lies an invisible engine: post-trade infrastructure. From issuance to settlement, the ability to bridge fragmented markets and reduce risk is now central to Europe’s next phase of ETF growth.

When an ETF appears in an investor’s portfolio, the process looks almost effortless. But behind the apparent simplicity lies a vast and intricate post-trade network working together to ensure that every ETF is properly issued, processed, settled, and recorded.

 This infrastructure is decisive: it secures settlement, connects markets, and ensures liquidity flows without interruption. For investors, this invisible resilience translates into confidence that their trades will arrive on time and intact. For the industry, it is the foundation that allows ETFs to scale across Europe. The growth of ETFs in Europe—projected to exceed $4.5 trillion by 2030 (Ernst & Young)—depends not only on investor demand, but on the systems that allow these instruments to scale reliably across borders.

Why Post-Trade Efficiency Matters

Post-trade efficiency determines how smoothly ETFs function and how costly they are for market participants. Unlike equities, ETFs involve both primary (creation/redemption) and secondary (exchange/OTC) markets, each generating settlement obligations. When the system falters, the consequences are immediate: settlement fails in European ETFs can reach 10–20% during volatile periods - a level of friction that drives up costs, ties up capital, and undermines confidence.

This matters even more as Europe transitions to a T+1 settlement cycle. Shorter settlement windows leave less time to resolve mismatches, and penalties under the CSDR settlement discipline regime make inefficiencies more expensive. Market makers, custodians, and asset managers all face higher operational risk unless the infrastructure can prevent, absorb, or resolve these fails.

Efficient post-trade processes are therefore not just a technical necessity; they are the foundation of market confidence. When investors trust that every ETF trade will settle on time, liquidity deepens, spreads narrow, and ETFs become more attractive as investment vehicles. Conversely, when settlement is unreliable, the entire model is at risk.

Europe’s Fragmented Market

Europe’s ETF ecosystem has grown rapidly, but its structure remains fragmented. Unlike the US, where a single depository infrastructure underpins all ETFs, the European market is divided across multiple jurisdictions, central securities depositories (CSDs), and regulatory regimes. Each country has its own settlement practices, tax considerations, and operational frameworks.

For issuers, this means higher costs and added complexity. An ETF listed across several exchanges may require coordination with multiple local CSDs, leading to duplicative infrastructure and the need for frequent realignments of positions. For custodians and market makers, fragmentation increases the risk of mismatches between where an ETF is issued, where it is traded, and where it ultimately needs to settle. The result can be liquidity trapped in silos, higher operational risks, and wider bid–ask spreads that ultimately impact investors.

Settlement failures are one of the clearest symptoms of this fragmentation. Industry data suggests that as many as one in five ETF transactions in Europe can fail to settle on time during periods of stress. Each fail triggers not only operational headaches but also financial penalties under settlement discipline regimes. In a market heading toward T+1 settlement, such inefficiencies become even more costly.

Recent initiatives by some European exchanges to consolidate ETF trading and harmonize post-trade processes aim to address these challenges and unlock new efficiencies. However, with only a small share of total ETF transactions occurring on any single venue, the broader impact remains limited and highlights the scale of the challenge.

Over the past decade, important steps have been taken to reduce fragmentation. Clearstream and Euroclear jointly introduced the ICSD model for ETFs, offering a unique approach to centralizing cross-border settlement and custody. The introduction of TARGET2-Securities (T2S) has harmonized settlement across much of the Eurozone, bringing domestic and cross-border flows onto a single platform in central bank money. Yet gaps remain: not all European markets are part of T2S, and multi-listings outside the platform - such as in London or Zurich - still create added layers of complexity.

This patchwork landscape is why post-trade efficiency is now viewed as a strategic priority in the ETF industry. The ability to bridge fragmented markets, consolidate liquidity, and harmonize settlement flows has become just as important as product design or trading volume.

Infrastructure at the Core of ETF Growth

Europe’s ETF market is expanding rapidly, but its infrastructure remains uneven. Clearstream supports more than €1 trillion in ETF assets under custody, with the International Central Securities Depository (ICSD) at the core of its post-trade approach.

 By allowing issuers to launch ETFs with a single ISIN, Clearstream and Euroclear ICSDs centralize settlement and custody, avoiding the costly realignments that arise when multiple local CSDs are involved. The ICSD and additionally the introduction of the ICSD+ model by Clearstream take this further by linking directly into T2S, bridging international and domestic markets.

 "What makes us different is that we connect clients to both domestic and international markets through one link, bringing together the International Central Securities Depository, the ICSD, and Europe’s Target2-Securities system, or T2S."

This connection enables real-time delivery-versus-payment in central bank money and consolidates liquidity across 20+ European markets. The ICSD+ model also allows for greater automation, so transfer agents can issue efficiently via Clearstream and reach both the ICSD and domestic CSDs - reducing operational friction for all participants.

Connectivity is another cornerstone. Clearstream’s expanding network of central counterparty (CCP) links ensures that ETFs can be cleared and settled efficiently, whether traded on-exchange or over the counter. This reduces counterparty risk and supports greater transparency across venues.

Our vision is to become the settlement location of choice for both cleared and non-cleared transactions from trading venues across all European markets. This would allow clients to consolidate the settlement of their trading activity into a single account, concentrating their liquidity and cash needs. In response to client requests, we are actively engaging with trading venues and CCPs to expand our offering.

In parallel, its securities lending and fail-mitigation tools help clients address one of the industry’s most persistent challenges - ensuring trades settle smoothly and reliably as the market transitions to T+1.

"Our role is to make complexity invisible. Clients shouldn’t have to think about CSD fragmentation or settlement mechanics. They need a single, scalable infrastructure that lets them focus on trading and distribution."

Preparing for the Next Phase

The drive toward harmonized trading and settlement is widely seen as a pivotal moment for Europe’s ETF market—one that supports the EU’s broader goals of deeper capital market integration and increased retail investor participation. By making cross-border ETF trading more accessible, these industry efforts are set to deliver new efficiencies and open up investment opportunities for a wider range of investors.

Europe’s ETF infrastructure is entering a period of rapid transition. The shift to T+1 settlement will test the resilience of post-trade processes, as shorter cycles leave less room to resolve mismatches and increase the cost of settlement fails. In this environment, efficiency is no longer just an advantage - it is a necessity.

Clearstream’s securities lending programs, including automated fails coverage, are designed to keep settlement rates high even under stress. By turning passive ETF holdings into lending pools, Clearstream helps both lenders and borrowers: lenders can earn incremental returns, while borrowers gain access to liquidity that prevents market disruption. This dual benefit will become even more important as the industry adapts to tighter settlement windows.

Making Growth Possible

The growth of Europe’s ETF market will not be decided only by new products or rising investor demand. It will depend on whether the underlying infrastructure can keep pace, connecting fragmented markets, reducing settlement risk, and enabling liquidity to flow seamlessly across borders.

“The European ETF market has the scale to rival the US, but only if post-trade infrastructure continues to evolve. Our mission is to ensure that when investors click ‘buy,’ the ETF arrives without friction — today, tomorrow, and in a T+1 world.”

This is the role that post-trade providers must play, often out of sight but never out of impact. When the system works, investors see only simplicity; when it falters, costs rise and confidence erodes.

Clearstream’s integrated approach - bridging ICSD and T2S, strengthening fail-mitigation tools, and preparing for the shift to T+1, demonstrates how robust infrastructure enables European ETFs to scale and remain resilient.

Therefore, the next phase of growth will require precisely this kind of resilient, integrated backbone. The industry will need to look not only at the products on offer, but at the systems that allow them to function without friction. In that space, Clearstream’s seamless offer has more to contribute than many realize — and it is here that the foundation for Europe’s next trillion in ETF assets will be laid.

This article first appeared in Funds Europe on 25.09.2025