ESMA to focus on physical ETFs and securities lending – Financial News

Rebecca Hampson
05 Dec 2011
The European Securities and Markets Authority, Europe’s securities watchdog, is to put the stock-lending and collateral policies of physical exchange-traded funds under its review spotlight, it emerged last week.

The proposals come amid heated debate in the ETF market over the risks associated with synthetic ETFs, which have come in for sharp criticism, and the performance of which is underpinned by a swap rather than a physical asset.

But Steven Maijoor, chairman of Esma, said last week that the regulator would require providers of all ETFs engaging in securities lending to disclose whether they lend out the underlying securities and what collateral the providers receive in return.

He said: “We aim at delivering more transparency vis-à-vis investors by requiring funds to disclose in their prospectuses the fact that they make use of securities lending, and setting out some specific rules on the disclosure of collateral and its quality.”

ETF providers are not required to provide this information, and analysts say this could mean investors are not fully aware of the risks associated with their investments.

Esma’s proposed paper, expected in January, will offer specific rules for European regulators on ETF transparency. Although these will not be legally binding, an Esma spokesman told Financial News that it expects the guidelines to be adopted by national regulators.

The original article is here.

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