ETFs Are Growing — And They’re Bringing Prime Brokers With Them
ETF issuers don’t just need execution anymore, they need infrastructure. As the U.S. ETF market pushes past $11 trillion and climbs into more complex territory — active, synthetic, crypto-linked, leveraged, etc. — prime brokers are becoming indispensable partners.
From block processing and financing to facilitating derivatives and helping to manage real-time risk, the role of the PB is no longer behind the scenes. It’s front and center! Here’s how demand is evolving, and why prime brokerage is quickly becoming the backbone of ETF innovation.
ETFs Aren’t Basic Anymore
ETF issuers used to simply track equity and fixed income benchmarks and call it a day. Now, they’re launching:
- Actively managed strategies that rebalance daily
- Leveraged/inverse funds requiring swap resets and margin calls
- Crypto-linked exposures relying on futures or proxies
- Synthetic ETFs that deliver returns via total return swaps
- Options-based income strategies
- Private credit or thematic bond portfolios
None of these are plug-and-play. They require prime brokerage plumbing — and lots of it.
Where Prime Brokers Fit In
Today’s ETFs need more than a ticker and a custodian. They need PBs for:
1. Clearing and Custody
Authorized Participants (“APs”) increasingly have to be self-clearing broker-dealers. Most aren’t. Issuers rely on PBs to route creations/redemptions through clearing-eligible pipes, safekeep assets, and settle trades without friction.
2. Securities Lending
Lending is no longer just a side gig — it is now a core yield. PBs source borrowers, handle recalls, and split fees, turning index ETFs into income generators. And for market makers? That borrow inventory means tighter spreads and deeper books.
3. Derivatives and Delta-One
Synthetic ETFs, levered ETFs, even covered call products — they all need swaps, futures, or options execution. PBs build and manage these exposures, collateralize them daily, and provide the leverage that drives the returns.
If the PB can’t model, fund, or monitor it, the ETF can’t exist.
4. Block Processing & Flow Management
Creation/redemption blocks require complex basket handling — often with illiquid securities or cross-border assets. PBs serve as the operational engine — coordinating APs, custodians, and counterparties in real-time.
5. Market Making and Seed Capital
New ETFs need an initial investment — called seed capital — before they can start trading. APs help by creating ETF shares and market makers provide liquidity and keep ETF prices close to the value of the underlying assets. Prime brokers support the process by offering tools like swaps and access to short positions. These roles are different but often work closely together, which can cause confusion. Today, many ETFs are launched using a 351 exchange, where a related party provides the initial assets in a tax-efficient way, reducing the need for outside seed capital.
6. Real-Time Risk & Margin
Whether it’s a 2x leveraged ETF or a crypto-linked synthetic, PBs monitor exposure tick-by-tick. Real-time dashboards, live VaR, and automated margining are now table stakes.
More Complexity = More Dependence
The ETF boom isn’t just a story of size — it’s about strategy diversification. And the further you get from basic beta, the more PB infrastructure you need:
- Active ETFs don’t always need a PB. Long-only strategies without derivatives or shorting typically rely on the custodian and broker dealers for executions and settlement during rebalances. PBs are more relevant for complex or fixed income strategies with liquidity challenges.
- Thematic ETFs may use PBs for access to niche or illiquid names. PBs can lend hard-to-find securities (generate income) and assist with complex redemptions (‘heartbeat trades’).
- Some crypto-linked ETFs hold spot assets like Bitcoin, while others gain exposure through futures, swaps, or proxy securities. Prime brokers manage the derivatives, post margin, and model risk on these often-volatile positions. Without prime broker support, these ETFs can’t operate effectively.
- Synthetic ETFs are wholly reliant on PB swaps. That includes exposure construction, collateral management, and regulatory compliance.
- Leveraged/Inverse ETFs must rebalance daily. That means daily swap resets, margin calls, and short inventory sourcing — all handled by the PB.
Infrastructure Is Scaling
To keep up, PBs are upgrading each of the following:
- Cloud-native tech-stacks for real-time processing and position visibility
- Collateral optimization tools for efficient margin and financing
- Swap desks with ETF-specific capabilities: faster onboarding, tighter pricing, and risk-managed limits
- Options infrastructure for income and volatility strategies (covered calls, buffers)
- ETF launch platforms to support seed capital, distribution, and end-to-end ops
The goal? Not just to support ETFs — but to accelerate them and keep them nimble.
Beyond Ops: Launch, Seed, Scale
Prime brokers also play a key role in:
Launching New ETFs
Seed capital matters. So does AP onboarding. PBs help sponsors get to market with initial assets, inventory, and liquidity partners lined up. The right PB can mean the difference between a smooth debut and a silent one.
Market Structure Integration
PBs work directly with APs, exchanges, and trading desks to streamline flows. They know how to move risk efficiently — from creation unit to street — which keeps spreads tight and pricing clean.
Operational Stability
In volatile markets, speed and accuracy are survival tools. Prime brokers give ETF issuers confidence that their flows will settle, their trades will clear, and their exposures will be covered — even when volumes surge.
Global Reach, Global Needs
While the U.S. leads ETF innovation, global growth is accelerating:
- Europe: Synthetic ETFs, cross-listed UCITS products, and swap exposure demand prime brokers with multi-jurisdictional clearing and collateral capabilities.
- Asia: Record inflows and complex access products (e.g. Saudi ETFs listed in Hong Kong) require cross-border structuring, futures financing, and local regulatory fluency.
ETF sponsors with global ambitions need PBs with global pipes.
The Bottom Line: ETFs Need Partners, Not Just Pipes
ETF issuers are doing more — and depending more — than ever on broker support. Whether it’s launching a synthetic clean energy ETF, managing short exposure in a thematic fund, or rebalancing a daily-leveraged biotech product, the PB isn’t optional. It’s foundational.
Issuers aren’t just looking for service providers — they want strategic partners who can:
- Operate across asset classes and time zones
- Scale operationally with fund growth
- Enable liquidity, not just react to it
- Handle complexity without sacrificing control
That’s the modern ETF value chain — and it all runs through (and supported by) the prime broker.
Mirae Asset Securities (USA) Inc. (“Mirae”) is providing this market commentary solely for the use of the institutional investors to whom this message is addressed. The commentary does not constitute “research” as defined by relevant FINRA or SEC rules, and thus the commentary was prepared by personnel who are neither engaged in the preparation of research reports nor are required to register as research analysts. In addition, the market commentary contained in this message is not subject to the independence and disclosure standards and requirements applicable to investment research reports. Please be advised that Mirae may trade the securities covered in the commentary on a principal basis (for itself) and on an agency basis (for clients). Such trading may be contrary to the commentary. THIS MATERIAL IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN INVITATION OR OFFER TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES OR SERVICES MENTIONED. BY PROVIDING THIS MARKET COMMENTARY MIRAE DOES NOT ASSUME A DUTY TO UPDATE SUCH COMMENTARY IN THE FUTURE.
OWNING THE NIGHT: How Hedge Funds Are Filling the Overnight Trading Void
Owning the Night: How Hedge Funds Are Filling the Overnight Trading Void
The U.S. equity market doesn’t sleep anymore. From 8:00 p.m. Sunday to 8:00 p.m. Friday, you can now trade stocks around the clock via extended electronic sessions. Brokerage Firms like Robinhood, Schwab, Mirae Asset Securities offer access to the US markets for 24-hour trading. And as the US major exchanges all plan their expansion into the 24-hour market, Hedge Funds are finding more liquidity during the overnight hours.
All signs point in one direction: the market is going nocturnal. And hedge funds, never ones to miss a dislocation, are stepping into the darkness.
The Rise of the 24/5 Market
U.S. equities used to follow a clear rhythm: pre-market (4:00–9:30 a.m.), regular session (9:30– 4:00 p.m.), and after-hours (4:00–8:00 p.m.). But now, a new window — the overnight session (8:00 p.m.–4:00 a.m. ET) — is going mainstream. Retail and institutional investors alike are pushing for continuous access, especially as global news and earnings hit tape well outside New York hours.
While equities don’t yet trade on weekends, they are effectively open 24 hours a day, five days a week. The only real pause is from Friday 8:00 p.m. to Sunday 8:00 p.m., when even futures go dark.
The shift is driven by:
- Global demand: Investors in Asia and Europe want real-time access to U.S. names.
- Crypto’s influence: 24/7 markets have changed expectations.
News cycles: Earnings, macro headlines, and geopolitical shocks increasingly land outside the regular session.
With volume building and platforms investing in infrastructure, the U.S. equity market is creeping toward a reality once reserved for FX and crypto: always on.
The Risks (and Rewards) of Overnight Trading
The overnight session remains relatively thin compared to the day. Liquidity is patchy, spreads are wider, and price discovery can be jagged. That volatility cuts both ways:
- Threat: A surprise earnings miss or geopolitical shock at 2:00 a.m. can gap a position 5% before the desk even boots up.
- Opportunity: Dislocations, overreactions, and stale prices create exploitable edge for funds willing to engage.
Market infrastructure is adapting to control chaos. Electronic networks impose price band limits. Dark pools and ATSs like Blue Ocean offer overnight matching. But overnight volatility remains real — and increasingly, material.
For hedge funds, that means risk management strategies must evolve. Trading can’t shut down at 4:00 p.m. anymore. Exposure has to be monitored — or mitigated — around the clock.
How Hedge Funds Are Filling the Void
1. Building Overnight Coverage
Top funds are staffing up to cover the overnight session. Some opt for dedicated night desks, particularly on earnings days or volatile macro weeks. Others use global “follow-the-sun” models — handing off portfolios from New York to London to Singapore. No matter the setup, someone is always watching.
Not every fund runs a full overnight team. But even old-school long/short managers are increasingly on call at 1 a.m. — not necessarily to trade, but to stay situationally aware of any changes in risk thresholds to their positions. Whether it be Geopolitical, Sector specific or even company specific events, being able to hedge, or trade in or out of a position at 2am becomes invaluable.
2. Automating Risk
The alternative to human coverage? Algorithms.
Hedge funds have built automated risk engines that can monitor exposures, flag anomalies, and trigger hedges — all without human input. If S&P futures drop 2% overnight, these systems can dynamically reduce equity exposure or overlay an index hedge.
Some models go further, adjusting hedge ratios based on market depth, implied vol, or even macro news sentiment. Others are plugged into crypto markets as an early warning system, watching for moves that could spill into equities before New York wakes up.
These aren’t “set it and forget it” bots — they’re real-time, rules-based, scenario-aware systems. In a world where milliseconds matter, waiting for the morning meeting isn’t good enough.
3. Predictive Scenario Planning
The best funds don’t just react to overnight moves — they anticipate them.
Machine learning systems now run rolling stress tests and “what-if” scenarios 24/5. What happens if the yen jumps 4% after Tokyo opens? What if a chip ban drops at midnight? These models simulate portfolio impact and flag vulnerabilities in real time.
That kind of forward-looking awareness isn’t academic. It’s operational. Funds are increasingly hedging preemptively before expected overnight events — especially on Thursdays and Fridays ahead of uncertain weekends.
In a 24-hour market, predictive analytics are no longer a bonus. They’re a necessity.
Who’s Active?
Overnight trading isn’t just the domain of retail thrill-seekers. Major institutional players are already deeply involved.
- Some digital asset firms maintain full 24/7 trading coverage.
- Quant and market-making firms are actively hiring for weekend and overnight shifts.
- Large multi-strategy funds are expanding global teams to minimize risk and capturereward during off-hours.
Crypto-native quantitative funds operate with round-the-clock risk dashboards and
execution systems.
The point isn’t who’s active — it’s that the serious players are taking it seriously.
The Bigger Picture: What 24/5 Trading Means for the Market
Market Structure is Evolving
Cboe, NYSE Arca, and 24X are reshaping what “market hours” even mean. If exchanges are open 24 hours, brokerages follow. If markets are active overnight, liquidity grows. And if hedge funds step in with size, pricing improves.
We’re heading toward a structure where time-of-day matters less and less. A market-moving headline at 1:00 a.m. doesn’t wait for New York to open — and now, neither do traders.
Risk Management Can’t Sleep
With no breaks during the week, funds have to rethink how they define exposure. Overnight gaps aren’t anomalies anymore — they’re part of the playbook. That means tighter controls, faster alerts, and risk engines that don’t nap.
Funds that treat 4:00 p.m. as “the end of day” are playing last decade’s game.
Liquidity Will Follow Flow
As more hedge funds trade overnight, volume builds, spreads tighten, and markets stabilize. The current chicken-and-egg problem — thin overnight liquidity keeping institutional traders on the sidelines — is starting to break down.
Liquidity follows flow. Hedge funds are the flow.
The Inevitable Question: Will Equities Go 24/7?
Crypto trades 24/7. Futures are close. Equities are 24/5. The only thing standing between now and full-week trading is infrastructure, regulatory alignment, and — to be blunt — a few more hedge funds demanding it.
We’re not there yet. But we’re close. And when the switch flips, the firms already operating 24/5 won’t need to adapt. They’ll already be positioned to dominate.
Final Word
The U.S. market is no longer confined to a 9:30 to 4:00 schedule. It’s 24/5, and the best funds are treating 2:00 a.m. like 2:00 p.m.
That means:
- Staffing across time zones
- Investing in smarter automation
- Modeling risk continuously
Pre-positioning into weekend uncertainty
Overnight is no longer a dead zone. It’s prime time — just less crowded. Around-the-clock trading is already a reality, and funds without prime brokerage support for overnight access and execution are exposing themselves to significant risk and missed opportunities.
…And in markets, being early is everything.