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EFAMA defends role of ETFs

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EFAMA this week defended Exchange-Traded Funds in a reply to the G20’

EFAMA this week defended Exchange-Traded Funds in a reply to the G20’s Financial Stability Board note on potential financial stability issues arising from the surge in their popularity. EFAMA wrote that a large majority of European ETFs were UCITS and therefore operated within a robust regulatory framework with “strong risk mitigation provisions”. The FSB raised the issue last month in which it called for regulators to pay increased attention to the ETF market, calling a number of recent ETF market developments “disquieting”. Their specific concerns centred around “synthetic” ETFs which use derivatives to track an underlying index and more intense securities lending by traditional ETF providers which, it claimed, should raise concerns over possible counterparty and collateral risks. Nevertheless, EFAMA says the UCITS Directive addresses these concerns, citing collateral rules for OTC derivatives, investment limits and disclosure requirements as “key elements” of the regime. It added that appropriate distinctions should be made between ETFs and other non-fund exchange-traded products such as ETNs due to the different levels of investor protection offered. EFAMA Director General Peter de Proft (pictured) said that EFAMA welcomed constructive dialogue with regulators with respect to ETFs and agreed with the need for transparency to investors. “UCITS ETF providers already provide for a higher level of transparency on fund assets and swap exposure via their websites on a voluntary basis,” said de Proft.

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