Investment Association: Recognise distinction between ETFs and other ETP structures

Tom Eckett


The Investment Association (IA) has said it is important to recognise the differences between ETFs and other ETP structures following the extreme volatility seen over the past few months.

In a white paper, entitled ETF Performance During the Coronavirus Crisis, the IA analysed the recent all-time high discounts across fixed income ETFs and highlighted the price discovery role they played compared to the stale net asset values (NAVs).

However, the body was keen to highlight differences between the way bond ETFs traded and what occurred in the oil markets where a number of exchange-traded commodities (ETCs) faced “difficulties”.

During the heightened volatility, many oil ETCs were forced to change their investment strategies after they ran the risk of wiping out investor returns if they remained fully exposed to front-month oil futures.

“ETCs are structured differently to ETFs, and accordingly, are subject to different regulatory requirements,” the IA said.

“It is important that these distinctions be recognised.”

The comments come after major US ETF issuers called on exchanges last month to implement a clearer categorisation for exchange-traded products (ETPs).

The coalition of ETF issuers said the ETP landscape should be split into four categories; ETFs, ETCs, exchange-traded notes (ETNs) and exchange-traded instruments (ETIs).

European ETF issuers must follow US lead in calling for clarity on ETP classifications

Clearer labelling has also been a major focus for the European Fund and Asset Management Association (EFAMA) which wants to implement similar changes in Europe.

However, the moves have led to some backlash from the European ETF industry with some experts claiming further classifications could lead to greater confusion.

“The IA notes the ongoing work being conducted by market participants in both the US and Europe with a view towards developing appropriate classification frameworks for ETPs,” the report added.

The white paper comes two months after ETF Stream revealed the IA appointed DWS’s head of ETP capital markets Keshava Shastry as its ETF committee chairman in April.

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