ETFs Need Tougher Collateral and Disclosure Rules, Iosco Says

Global markets regulators called for tougher oversight of exchange-traded funds, recommending stricter rules on collateral and investor information.

ETFs that track stock markets should publish daily the identities of the securities, they buy and sell, the International Organization of Securities Commissions said in a statement on guidelines published today. The Madrid-based group of global markets regulators said authorities should also ensure ETFs that trade derivatives have enough collateral to manage risks with their counterparties.

The global ETF industry had $1.9 trillion of assets under management at the start of the year, according to the Iosco report. While financial watchdogs have reined in excessive risk taking by banks in the wake of the 2008 crisis, they are concerned that lenders and other financial firms can use ETFs, repurchase agreements and other off-balance sheet activities, known as shadow-banking, to evade the rules.

“Dynamic growth” in the market for these funds has “attracted the attention of regulators, concerned about the potential impact of ETFs on investors and on the broader marketplace,” Iosco said.

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