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The International Organization of Securities Commissions is planning to make new recommendations that will strengthen the oversight of ETFs as part of the Madrid-based regulator’s remit to protect investors, promote fair and efficient markets and reduce systemic risks.
Iosco launched an investigation into the liquidity risks of mutual funds and ETFs earlier this year. It is expected to publish a paper detailing its initial findings in the coming weeks. Iosco aims to broaden its analysis in the new probe and will consider whether serious market distortions might occur as a result of the growth of ETFs. It will also examine issues around liquidity and valuations. Paul Andrews, a veteran US regulator who was appointed secretary-general of Iosco in 2016, said questions needed to be asked about whether ETFs could cope with pricing or liquidity shocks that are likely to arise as central banks withdraw from emergency support measures and tighten monetary policy.
Iosco is concerned that large institutional investors, known as authorised participants, could manipulate the prices of ETFs to create profitable trading opportunities. Authorised participants gather large numbers of assets together and trade these baskets of securities directly with ETF managers to create ETF units.
Full article on Financial Times (subscription required)