The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Systemic risk unease puts exotic ETFs in regulators’ sights

Regulatory criticism of synthetic and levered ETFs might force asset managers out of these products altogether. The bigger risk is that it tarnishes the entire trillion-dollar ETF industry. Louise Bowman reports.

WHEN UK INVESTMENT manager Evercore Pan-Asset announced at the end of June that it planned to remove synthetic exchange traded funds from most of its portfolios it seemed that the lingering disquiet in this part of the ETF market might be about to come to a head. Having enjoyed rampant growth over the past decade, the ETF market found itself the target of an IMF Financial Stability Board paper published in April that raised concerns about the risk that these supposedly vanilla instruments embody. While asset managers have debated the merits of the FSB’s position, the news that they might now start pulling out of these instruments has big implications for the market.

Regulatory concern has been prompted by the growth in synthetic ETFs which now account for 45% of the ETF market in Europe, according to the FSB.

Unlike physical ETFs these instruments enter into an over-the-counter derivative with a counterparty rather than replicating the index physically. It is this – and the growth in levered ETFs – that is causing concern. "The drift of ETFs away from their original bearings is striking," said Bank of England deputy governor Paul Tucker in a speech in London in July.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree