Regulators and ETP providers should more clearly differentiate between traditional ETFs and those using complex strategies that "add unexpected risk", according to Evercore Pan-Asset (EPA).
EPA chief executive Christopher Aldous distinguished between low-cost ETFs tracking well-established indices and those which leverage, sell short, track illiquid assets and use active management.
He said: "EPA wants this second group of products to be clearly labelled to inform investors of the difference in structure." The firm already marks products in this way throughout its internal processes.
EPA's comments come in response to reports from a number of international regulators, including the Financial Stability Board (FSB) and the International Monetary Fund (IMF), examining the development of the ETP industry.
Both the FSB and IMF expressed alarm about the increasing use of swap-based structures, but EPA said synthetic ETFs are not necessarily complex provided they are well collateralised.
On the back of accusations that the industry could pose a threat to global financial stability, EPA pointed out ETFs remained strong throughout 2008 when a number of hedge funds and investment banks faced difficulties.
However, the firm said regulators are right to raise their concerns and argued the first step towards addressing these should be "a clearer, less confusing classification" of different types of ETPs.
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds
Variable operating expenses