The Financial Stability Board has warned of the rapid growth and increasing complexity of the exchange traded fund market.
The FSB, made up of the world’s central banks and financial regulators, was created in April 2009 from the Financial Stability Forum after leaders of the G20 countries called for an expanded membership beyond the G7 nations. It published a note last week which warned of a number of “disquieting developments” in the ETF market.
In particular, the FSB has warned about the growth of synthetic ETFs, which use derivatives rather than physical securities.
It says as the firm holding the swap counterparty risk is usually acting as the ETF provider, problems at the banks active in swap-based ETFs may act as “a powerful source of contagion and systemic risk”.
The FSB is also concerned that as ETFs can be based on less liquid assets, if there was a market sell-off, there could be liquidity risks if redemptions needed to be in cash. It is also worried that lending of securities held within ETFs may create similar risks to those associated with synthetic ETFs.
The FSB says: “The recent rapid growth and innovation in the market for ETFs is a development that the FSB believes warrants increased attention by regulatory and supervisory authorities as well as by the ETF industry.”
BlackRock ETF platform iShares EMEA head Joe Linhares says: “The FSB calls not just for transparency but also for providers to show evidence to investors of a demonstrable infrastructure to support transparency.”
Hargreaves Lansdown investment manager Ben Yearsley says: “I am not sure that a lot of investors realise what they are buying into with ETFs. If you do not know what the underlying holdings are, you cannot access the risk properly.”
Source: The Financial Stability Board has warned of the rapid growth and increasing complexity of the exchange traded fund market.
The FSB, made up of the world’s central banks and financial regulators, was created in April 2009 from the Financial Stability Forum after leaders of the G20 countries called for an expanded membership beyond the G7 nations. It published a note last week which warned of a number of “disquieting developments” in the ETF market.
In particular, the FSB has warned about the growth of synthetic ETFs, which use derivatives rather than physical securities.
It says as the firm holding the swap counterparty risk is usually acting as the ETF provider, problems at the banks active in swap-based ETFs may act as “a powerful source of contagion and systemic risk”.
The FSB is also concerned that as ETFs can be based on less liquid assets, if there was a market sell-off, there could be liquidity risks if redemptions needed to be in cash. It is also worried that lending of securities held within ETFs may create similar risks to those associated with synthetic ETFs.
The FSB says: “The recent rapid growth and innovation in the market for ETFs is a development that the FSB believes warrants increased attention by regulatory and supervisory authorities as well as by the ETF industry.”
BlackRock ETF platform iShares EMEA head Joe Linhares says: “The FSB calls not just for transparency but also for providers to show evidence to investors of a demonstrable infrastructure to support transparency.”
Hargreaves Lansdown investment manager Ben Yearsley says: “I am not sure that a lot of investors realise what they are buying into with ETFs. If you do not know what the underlying holdings are, you cannot access the risk properly.”
Source: http://www.moneymarketing.co.uk
The FSB, made up of the world’s central banks and financial regulators, was created in April 2009 from the Financial Stability Forum after leaders of the G20 countries called for an expanded membership beyond the G7 nations. It published a note last week which warned of a number of “disquieting developments” in the ETF market.
In particular, the FSB has warned about the growth of synthetic ETFs, which use derivatives rather than physical securities.
It says as the firm holding the swap counterparty risk is usually acting as the ETF provider, problems at the banks active in swap-based ETFs may act as “a powerful source of contagion and systemic risk”.
The FSB is also concerned that as ETFs can be based on less liquid assets, if there was a market sell-off, there could be liquidity risks if redemptions needed to be in cash. It is also worried that lending of securities held within ETFs may create similar risks to those associated with synthetic ETFs.
The FSB says: “The recent rapid growth and innovation in the market for ETFs is a development that the FSB believes warrants increased attention by regulatory and supervisory authorities as well as by the ETF industry.”
BlackRock ETF platform iShares EMEA head Joe Linhares says: “The FSB calls not just for transparency but also for providers to show evidence to investors of a demonstrable infrastructure to support transparency.”
Hargreaves Lansdown investment manager Ben Yearsley says: “I am not sure that a lot of investors realise what they are buying into with ETFs. If you do not know what the underlying holdings are, you cannot access the risk properly.”
Source: The Financial Stability Board has warned of the rapid growth and increasing complexity of the exchange traded fund market.
The FSB, made up of the world’s central banks and financial regulators, was created in April 2009 from the Financial Stability Forum after leaders of the G20 countries called for an expanded membership beyond the G7 nations. It published a note last week which warned of a number of “disquieting developments” in the ETF market.
In particular, the FSB has warned about the growth of synthetic ETFs, which use derivatives rather than physical securities.
It says as the firm holding the swap counterparty risk is usually acting as the ETF provider, problems at the banks active in swap-based ETFs may act as “a powerful source of contagion and systemic risk”.
The FSB is also concerned that as ETFs can be based on less liquid assets, if there was a market sell-off, there could be liquidity risks if redemptions needed to be in cash. It is also worried that lending of securities held within ETFs may create similar risks to those associated with synthetic ETFs.
The FSB says: “The recent rapid growth and innovation in the market for ETFs is a development that the FSB believes warrants increased attention by regulatory and supervisory authorities as well as by the ETF industry.”
BlackRock ETF platform iShares EMEA head Joe Linhares says: “The FSB calls not just for transparency but also for providers to show evidence to investors of a demonstrable infrastructure to support transparency.”
Hargreaves Lansdown investment manager Ben Yearsley says: “I am not sure that a lot of investors realise what they are buying into with ETFs. If you do not know what the underlying holdings are, you cannot access the risk properly.”
Source: http://www.moneymarketing.co.uk
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