Proposals from the
International Organisation of Securities Commissions (Iosco)
have been widely criticised for distinguishing between exchange
traded funds (ETFs) and collective investment funds
published consultation on ETFs proposed specific guidelines
relating only to ETFs, instead of all CIFs.
The chairman of Lyxor Asset
Management, Alain Dubois, did not understand why Iosco had
adopted this approach, saying that most of the proposals would
be applicable to all CIFs.
"Iosco said themselves that
ETFs are CIFs, but it wants to propose guidelines only for
CIFs," said Dubois.
The difference between ETFs
and undertakings for collective
investment in transferable securities funds (Ucits) is
that ETFs are listed on a stock exchange.
Joanna Cound, managing
director, government relations at Black Rock agreed that ETFs
are largely Ucits products, meaning they are subject to the
strict rules of issuer diversification, counterparty exposure
and collateral quality.
"I would say however that
there is large range of different funds out there," said Cound.
"We would classify them as exchange traded products (ETPs) -
some of which are Ucits."
Speaking at the
EC’s shadow banking conference, an opportunity for
stakeholders to participate in the unfolding debate, Dubois
said that it is strange that derivatives are popularly
associated with ETFs.
The derivatives used by ETFs
are straightforward instruments. "They are simply derivatives
that transform one basket of securities into the performance of
another basket of securities," he said.
Addressing the issue of
securities lending, Cound said that it is important for policy
makers to understand that it is an ancillary
"Some funds lend securities
when it is beneficial to the end investors, others
don’t," she said.
On average, in Europe, the
amount of securities that BlackRock lends out is around 15% of
The BlackRock representative
added that it’s important to differentiate between
swap based ETFs and securities lending. While securities
lending is ancillary - the fund can run without securities
lending - swaps are inherent to the swap ETF.
Guillaume Prache, vice chair
of the European Commission’s financial services
user group, emphasised that the main actors in shadow banking
are the banks.
"For us it’s not
only shadow banking, but it’s also banking
shadows," said Prache.
Prache wanted to know where
the lending of all of these swaps goes. And, importantly, what
the banks are using them for.
from the statistics that it’s not going to the
real economy," he added.
A key point raised at the
session addressing investment funds, ETFs and shadow banking
issues was that it is retail investors that have the real
problem with index ETFs.
In Europe 90% of the index ETF
is institutional markets, with the remaining 10% is for retail
investors. In the US the split is 50:50.
"Index ETFs are
straightforward investment proposals for retail investors, they
are very low cost for the retail investors," said
But despite this, they are not
offered to retail investors.