BlackRock calls for greater transparency and consistent regulation for ETFs

BlackRock, owner of ETF provider iShares, has called for greater transparency and consistent regulation in the ETF market.

While it recognises the benefits that the growth of the ETF market has offered to investors – including increased transparency and disclosure – it says that “increasingly complex ETFs and related products have sometimes failed to maintain that standard and have introduced new risks to these products”.

It proposes five reforms for the ETF market: clear labelling of product structure and investment objectives, frequent and timely disclosure of all holdings and exposures, clear standards for diversifying counterparties and quality of collateral, disclosure of all fees and costs paid and universal trade reporting for all equity trades, including ETFs.

BlackRock cites changes in capital markets and the ETF market as the reason for recommending these changes.

“Over the last decade, innovations in the financial industry, in part driven by technology, have changed capital markets significantly and have affected the way all securities, including ETFs, trade,” it says.

“Regulations, however, may need to further adapt to the rapid changes in the marketplace.”

David Gardner, head of sales for EMEA at iShares says that this is the beginning of a series of recommendations the company will be making. “I would look at this as BlackRock/iShares trying to help be a curator to the ETP industry going forward.

“We will be coming to the ETF market in Europe with even more recommendations and education for investors in the next two weeks.”

BlackRock raises concerns that not all products which are referred to as ‘ETFs’ are as transparent as ‘traditional’ ETFs, which hold physical securities.

It notes the recent regulatory reports on use of synthetic strategies, lack of transparency and counterparty. It pays particular attention to the Financial Stability Board’s report, published in April this year.

Although it draws attention to potential causes for concern in the synthetic ETF market (iShares issues mainly physical ETFs), regulators have focused their attention on both swap-based and physical ETFs this year.

Esma’s current look at Ucits ETFs does not separate the structures. In fact, any new guidelines it introduces are likely to be introduced for all Ucits funds.

Some of the reforms BlackRock calls for are likely to be introduced under changes to existing regulations. Mifid is currently under review, with revised proposals expected this month; expectations are that it will introduce trade reporting for ETFs.

Providers are also increasingly publishing daily fund holdings on their websites but many in the industry support a move towards even greater transparency. However, they often note that ETFs are already much more transparent than traditional, actively managed funds.

But Gardner says there is room for more: “We think the issues are being discussed but we think there is still room for clarity on some issues. Ultimately that will come from various regulators to help shape advanced regulatory policy.”


This article first appeared on ETFM.


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