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EACB: ETF transparency essential after UBS

Thursday 22 September 2011 - by Andrew Hickley

Complex exchange-traded funds should be subjected to greater levels of transparency, especially in light of the rogue trader scandal from UBS, the European Association of Cooperative Banks has argued.

Synthetic ETFs and structured ETFs should be forced to adhere to higher levels of transparency when being marketed and sold, the EACB said in a letter to the European Securities and Markets Authority, sent on Thursday.

In an effort to boost investor protection, Esma has put forward a consultation mooting the benefits of Ucits ETFs having to obey higher transparency requirements.

Esma's consultation also suggests that Ucits ETFs should be required to use an identifier in their names, fund rules, prospectuses and marketing material, which would clearly categorise them as an ETF.

In its letter, the EACB announces its "clear support" for Esma's recommendations, which it says could boost market liquidity.


The association argues that investors should be made aware of all possible risks stemming from an ETF.

"We therefore agree with Esma's intentions on heightening transparency," the EACB's letter says.

"Once all transparency requirements are fulfilled, we believe that funds should be allowed to act freely within the boundaries of the Ucits regulation and its prospectus.

"We have confidence that this creates a diversified environment that fosters products suitable for each type of investor, therefore ultimately adding liquidity to the market."

The changes are especially relevant "in light of the recent scandal unfolding" at UBS, the letter says.

London police arrested 31-year-old Kweku Adoboli a week ago after the trader allegedly lost around $2.3bn (€1.7bn) in unauthorised trades in synthetic ETFs.

While Esma released the discussion paper in July, Adoboli's arrest came just a week before the consultation closed.

Send us your thoughts (in strict confidence) or submit an article in response:
Email: andrew.hickley@gfsnews.com


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