ETF providers and investors have guardedly welcomed the Financial Stability Board's call for greater scrutiny of exchange-traded products.
The super-regulator on Tuesday warned recent innovation in the ETP industry is bringing "new elements of complexity and opacity" into the market.
iShares says a number of recent developments in ETFs require closer scrutiny and says it is "encouraging" the FSB is calling for transparency.
The issuer also agrees with concerns over the potential conflicts of interest where swap-based ETFs and their derivative trading counterparts are within the same group.
iShares says: "Risks increase if the bank considers the synthetic structure as a stable and inexpensive source of funding for illiquid securities."
Joe Linhares, iShares head of EMEA, says: "iShares has long supported the physical replication model but we have recently engineered a leading swap-based ETF platform which is in response to the rapidly growing appetite for exposure to difficult-to-access markets, combined with a desire for transparency, disclosure and minimised counterparty risk."
The majority of iShares' products are physically replicated, meaning the funds invest in the respective index's stocks and can be lent out for a fee.
TCF Investment joint CEO and founder David Norman says the risks highlighted are not confined to ETFs. He adds: "Some UCITS IV absolute return strategies are hardly transparent or simple."
The FSB's concerns largely centre on the industry's evolution beyond "plain-vanilla" funds, and synthetic structures come in for criticism for creating potential "conflicts of interest" when a bank acts as both ETF issuer and derivative counterparty.
However, Lyxor head of European ETFs Simon Klein argues: "It is clear to us that these synergies operate to the benefit of the ETF holder and allow for efficiencies and enhancements to be passed through to the end client".
He adds that Lyxor have always made details of their funds' assets available on client request and are in the process of rolling out this information to be immediately available on their websites.
Norman says transparency around underlying securities baskets in synthetic ETFs has improved, but still needs monitoring by investors.
He adds: "There is some excellent value, transparent products issued by strong providers with a proven track record so we should be careful not to throw the baby out with the bath water."
Evercore Pan-Asset (EPA) chairman John Redwood says: "The FSB is also right to alert investors to the growth of complex and riskier ETFs. EPA screens out ETFs which gear or go short, as we do not wish our clients to run such risks."
He adds: "EPA has long called for a different name to be given to funds which have complex structures, gear, go short, or move towards active management elements.
"We think they should be called something which alerts people to the fact that they are different from simple ETFs which buy a portfolio of shares."
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