ETFs Are Becoming a Shadow Banking System, Tullett’s Smith Says

Exchange-traded funds are developing in a similar way to the shadow banking system that almost brought down the world’s financial system in 2008, according to Terry Smith, chief executive officer of Tullett Prebon Plc.

ETFs often fail to track the underlying asset whose behavior they’re designed follow, are exposed to the risk of a provider going bankrupt and are vulnerable to heavy short-selling, Smith, 58, wrote today in a blog titled “ETFs - Worse than I thought.”