Additional ETF regulatory scrutiny unwarranted - panel
05 December 2011 London
Image: Shutterstock
ETFs are expected to see continued growth driven by greater pressures for asset managers to provide cost efficiencies, said speakers representing fund managers, analysts and product developers at a recent panel discussion organised by SPDR ETFs, the exchange traded funds platform of State Street Global Advisors (SSgA)
ETF products still represent a small share of the global market at some $1.3 trillion making up five per cent of mutual fund AUMs, however, they are on pace to exceed $2 trillion in 2012.
While the investment industry is split on some of the implications of the advent of these index-trackers, both synthetic and physical, at the same time panelists from SPDR, ETF Morningstar, HSBC Global Asset Management and 7im expressed consensus that regulations which single out ETFs for greater scrutiny over other funds, such as UCITS funds, does not make much sense.
Still, panelists noted that there are no accurate statistics on who the end-users of the products are though efforts by ETF issuers to track the information down are being made. The best "guesstimates" are a 90/10 split between institutional and retail investors and 50/50 in the US.
The debate over ETFs receiving additional scrutiny recently reached the securities lending market after the practice attracted the attention of European financial markets watchdog, ESMA.
Speaking to SLT as a fund manager looking at the area, Stephen Doran from HSBC Global Asset Management said that though risk management is a concern, as with all products, securities lending in the ETF space is in line with the product's share in the market while at the same time fee splits are becoming less opaque.
“Along the lines of transparency, many [firms] are providing details on their website on how much the fund makes...so you have a degree of transparency which is an improvement over what used to be there for investors,” he said, adding that larger firms and custodians which indemnify are mitigating some of the counterparty risks flagged by regulators.
“At the end of the day, [the returns] feed back to lowering costs [for investors],” Doran said.
ETF products still represent a small share of the global market at some $1.3 trillion making up five per cent of mutual fund AUMs, however, they are on pace to exceed $2 trillion in 2012.
While the investment industry is split on some of the implications of the advent of these index-trackers, both synthetic and physical, at the same time panelists from SPDR, ETF Morningstar, HSBC Global Asset Management and 7im expressed consensus that regulations which single out ETFs for greater scrutiny over other funds, such as UCITS funds, does not make much sense.
Still, panelists noted that there are no accurate statistics on who the end-users of the products are though efforts by ETF issuers to track the information down are being made. The best "guesstimates" are a 90/10 split between institutional and retail investors and 50/50 in the US.
The debate over ETFs receiving additional scrutiny recently reached the securities lending market after the practice attracted the attention of European financial markets watchdog, ESMA.
Speaking to SLT as a fund manager looking at the area, Stephen Doran from HSBC Global Asset Management said that though risk management is a concern, as with all products, securities lending in the ETF space is in line with the product's share in the market while at the same time fee splits are becoming less opaque.
“Along the lines of transparency, many [firms] are providing details on their website on how much the fund makes...so you have a degree of transparency which is an improvement over what used to be there for investors,” he said, adding that larger firms and custodians which indemnify are mitigating some of the counterparty risks flagged by regulators.
“At the end of the day, [the returns] feed back to lowering costs [for investors],” Doran said.
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