Principles for the Regulation of Exchange Traded Funds

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Principles for the Regulation of Exchange Traded Funds

Postby Peculiar_Investor » 14 Mar 2012 14:46

A tip of the hat to Regulators starting to tighten leash on ETFs - The Globe and Mail
Exchange traded funds are all the rage these days, and regulators have quickly realized that oversight hasn’t kept up with the explosion.

Not only do regulators want to ensure that investors aren’t getting screwed, they’re also worried about the effects ETFs have on marketplace stability. The Bank of England recently pointed out that the complexity, opacity and interconnectedness of ETFs can “amplify propagate stress across markets.” In layman’s terms: they can really mess things up.

Some of this behavior was observed during the "Flash Crash".

The underlying document Principles for the Regulation of Exchange Traded Funds for those that like to understand the details.

Some of the concerns and issues have been discussed in various topics on FWF.
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Re: Principles for the Regulation of Exchange Traded Funds

Postby ghariton » 15 Mar 2012 01:28

Thank you for that, and especially the link. I thought it was a particularly clear exposition of the potential risks of ETFs and proposed remedies.

I note that so far we only have a consultation paper by IOSCO. We still need (1) a final report by IOSCO and (2) implementation by various member countries. Not a slam dunk.

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Re: Principles for the Regulation of Exchange Traded Funds

Postby Bylo Selhi » 15 Mar 2012 08:27

ghariton wrote:Thank you for that
Ditto. You should post this on Bogleheads if you haven't already.

I thought it was a particularly clear exposition of the potential risks of ETFs and proposed remedies.
TFA, "Regulators want to ensure that investors aren’t getting screwed"

Not sure if I should clap or cry :roll: (Call me a cynic but in my experience that concern for investors gets expressed only after regulators have catered to industry interests.)

TFA, "some industry members back the regulators, with BlackRock suggesting that only the simplest products should be classified as ETFs."

I'm not sure why regulators should get involved in that, but I laud the sentiment. Do we really need ETFs that invest in esoteric sectors or that have inherently risky structures?

We still need (1) a final report by IOSCO and (2) implementation by various member countries. Not a slam dunk.
(3) adoption by 13 provincial regulators?
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