Luxembourg wants to win back ETF business from Ireland. It’s scrapping a tax on actively managed ETFs and approving semi-transparent ETFs, which let fund managers hide their holdings for a while instead of disclosing them daily. On paper, that sounds like a big deal. In reality? Not so much.
If you’re a young analyst working on fund structuring, this is a great example of why financial markets aren’t just about tax rates and regulations. The real drivers are liquidity, infrastructure, and how easy it is for banks and fund managers to do business.
Luxembourg is a giant in mutual funds, and for good reason. That industry runs on relationships—fund issuers work with lawyers, banks, and administrators to set up funds, which are then pushed to investors through private banks and institutions. ETFs don’t work like that. They trade on exchanges, and their success depends on market makers, authorized participants (APs), and investment banks ensuring there’s liquidity and tight spreads. That’s where Ireland dominates.
Ireland has built a system that works: banks know the process, trading is efficient, and US investors get a tax break thanks to Ireland’s double tax treaties. That’s why Ireland has €1.6 trillion in ETF assets, while Luxembourg has just €266 billion. The flow of business is clear, and once the market is set up like this, it’s hard to change.
Luxembourg’s latest moves try to address some of these issues. The subscription tax cut makes ETFs slightly cheaper, but it’s not a game-changer. And semi-transparent ETFs? They’ve been around in the US for years, and they haven’t really caught on. Investors like transparency, and market makers prefer it too—it makes trading smoother. If semi-transparent ETFs were a big deal, Ireland would have adopted them already.
The real challenge is that Ireland’s ETF infrastructure is already entrenched. If you’re a fund manager talking to an investment bank about launching an ETF, the answer almost always leads to Ireland. The system is efficient, the tax structure is attractive, and the trading ecosystem is already built. Luxembourg’s new rules might help a little at the margins, but convincing issuers, banks, and market makers to shift business is a much bigger challenge.
For anyone watching this story, the takeaway is simple: tax tweaks and new regulations can make headlines, but deep liquidity, trading infrastructure, and established market networks are what really matter. Luxembourg’s ETF fightback is interesting, but unless it finds a way to break Ireland’s dominance in those areas, the status quo isn’t likely to change anytime soon.