ETFs now account for 40% of US exchange volume as record inflows test liquidity infrastructure

For every $10 traded on US exchanges, at least $4 was in ETFs. This threshold, crossed in early March 2026, marks a structural shift in market composition — not just a surge in assets, but a reordering of how investors access markets. The spike coincided with geopolitical-driven volatility, during which ETFs served as a liquidity outlet and provided price discovery when traditional instruments faltered. That same month, ETFs accounted for over 40% of the notional trading volume on US exchanges, a signal that their role has evolved from portfolio satellite to core trading vehicle.

The infrastructure behind this shift is under pressure. Global ETF inflows hit record levels in 2025 and early 2026, with 11,167 new ETFs listed in the US last year alone. BNY added more than two new ETFs per day to its platform in 2025, reflecting both organic growth and a wave of new entrants — from first-time issuers to cross-border managers expanding into the US or Europe. While passive funds still dominate flows, with the S&P 500-linked ETF remaining the top seller, demand is broadening. Investors are increasingly allocating to actively managed ETFs and option-based strategies that offer income or downside protection, especially during volatile periods.

These structured products are now expanding into Europe, where issuers are racing to establish positioning. At the same time, short-duration fixed income ETFs have seen inflows as investors rotate to lower-risk exposures. But the next phase of growth hinges on infrastructure, not product creation. Ninety-eight managers have filed with the SEC to launch ETFs as a share class of existing mutual funds. Seventy have approval. Three have launched — F/m Investments, Dimensional Fund Advisors, and Thornburg Investments. The bottleneck is not regulatory but operational: distribution platforms must adapt to automated share class conversions.

The Depositary Trust Company (DTC) is upgrading its systems to standardize daily files by the end of Q2 2026, enabling seamless conversion from mutual fund shares to ETF shares. Once live, clients could theoretically “click a button” to convert holdings. But the real constraint may lie beyond settlement. As ETFs expand into digital assets and private markets, the pool of liquidity providers capable of seeding and supporting these funds shrinks. No issuer has yet reported being blocked from launching due to lack of market maker capacity — but the question is no longer hypothetical.