Exchange traded fund (ETF) provider iShares has released a paper recommending universal standards of transparency and disclosure for the global ETF market.
According to the paper, entitled ‘ETFs: A Call for Greater Transparency and Consistent Regulation’, the term ‘ETF’ has become a blanket term that inconsistently describes a number of products with a range of different structures and the recommendations have called for clear labelling of product structure and investment objectives of ETF products.
iShares head of Australia Mark Oliver said that the business has become aware of the move from traditional ETFs backed physical securities and the emergence of complex, synthetic products.
"These products may be called ETFs, but they’re worlds removed from ETFs as iShares understand them," Oliver said.
One of the recommendations from the paper suggests that the term ‘exchange traded products’ (ETP) be used to describe any portfolio exposure product that trades on an exchange, while ‘ETF’ should only refer to a specific sub-category, in particular a product that is regulated as a publicly offered investment fund and is appropriate for a long-term retail investor.
iShares also believes in the frequent and timely disclosure of all holdings and exposures, particularly with regard to derivative-backed products. The paper also recommends standards for diversifying counterparties and quality of collateral; disclosure of all fees and costs paid, including those of counterparties; and universal trade reporting for equity trades, including ETFs.
"Because ETFs remain relatively new in Australia, regulators and the industry have had the opportunity to observe international trends and apply best practice here," Oliver said.
Oliver believes Australia has one of the strongest ETF-related regulatory systems and simplest products sets in the world.
