T+1 Settlement
Ultumus presented a proposal to address the NAV timing gap under T+1 settlement, specifically for ETFs with Asian and EM market exposure. The proposed mechanism uses a fund-level buffer fee on creation orders, with a true-up cash adjustment settled the following day on an order-by-order basis.
Feedback from the group was broadly cautious. The main concern was balance sheet impact for market participants operating across multiple issuers simultaneously, with spreads expected to widen as a result. Several participants noted that existing true-up processes already handle this in practice and questioned whether a formal buffer adds unnecessary complexity. The US T+1 transition was cited as a reference point, concerns ahead of go-live largely did not materialise.
No industry consensus exists on the buffer question, and the debate continues across regulatory working groups. The key open question remains: who bears the risk, and is it material enough to justify the operational build?
Regardless of the outcome, the group agreed that structural preparation should begin now – PCF and systems changes would require approximately six months of lead time if needed, and the capability should be built even if ultimately kept as a fallback.
Active ETF Classification
There was broad agreement that the current binary active/passive classification is no longer fit for purpose. The majority of new active launches sit in an “index-aware” middle ground – low tracking error, index benchmarked, but technically classified as active. Lumping these alongside genuinely high-conviction, intraday-rebalancing products creates confusion for investors and market participants alike.
Proposed dimensions for a better framework included rebalancing frequency, tracking error, degree of trader discretion, and forward-looking PCF availability. However, each of these metrics has limitations, and no clean solution emerged. The analogy to SFDR – similarly subjective, similarly contested – was widely felt.
The group agreed to wait for regulatory guidance before proposing a formal framework, while recognising that the industry will need more than two categories to adequately communicate risk to end investors.
Pre-Launch Market Maker Communication
Flagged as a growing operational challenge as ETF products become more complex, but deferred to Meeting #3 due to time. A dedicated agenda slot will be allocated.
Next Steps
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Ultumus to circulate a proposal paper on active/passive classification framework ahead of the next meeting
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Pre-launch market maker communication to be a standalone agenda item at Meeting #3
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Next forum: October 2026 (date TBC)