By Christopher Elias
LONDON, May 24 (Business Law Currents) Promising low tax and returns from even the most unlikely of assets, the market in exchange traded funds (ETFs) shows no sign of slowing down. Fears of systemic risk are, however, causing some global regulators to rethink the growth of synthetic ETFs.
With ETFs having all the hallmarks of a troubling financial innovation, regulators are raising concerns over the growth of exchange traded funds and their ability to have unintended consequences for the financial industry. As ETFs are capable of taking the form of derivatives on derivatives, a comparison with collateralised debt obligations (CDOs) is not unwarranted, leading many to conclude that exchange traded funds might have the same explosive potential as CDOs had in the subprime crisis.