Speaking on the third of ETF Stream’s webinar series, ETF Ecosystem Unwrapped, entitled Policy and Regulation: Key developments in the European ETF industry, Rushe (pictured) said the ETP classifications could lead to further confusion in Europe where the UCITS structure is already in place.
His comments come after major US ETF issuers such as BlackRock and State Street Global Advisors called on exchanges to implement clearer identification and categorisation for ETPs.
One area of controversy with the proposals is the push to segment inverse and leveraged into a new exchange-traded instrument (ETI) category.
Rushe said this could create confusion in Europe as many inverse and leveraged ETFs are regulated under the UCITS structure which is seen as the gold standard for investment vehicles globally.
“Europe has different challenges to the US,” he continued. “UCITS funds can be leveraged but in the US, issuers say they should not be called ETFs.
“It is still very confusing and will be a real challenge to reach a point when everyone agrees what an ETF is and more specifically, what an ETF is not.”
Despite the challenges, however, Rushe stressed the importance of achieving some form of classification as the more esoteric ETPs risked damaging the brand reputation of the ETF wrapper.
He gave the example of the triple leveraged oil ETCs that were forced to close trading following historic volatility in the oil markets.
“There have been many scenarios where we have seen issues in the ETP space that get confused with ETFs in the media,” Rushe added.
Although non-transparent ETFs have come to market in the US, Rushe said the lack of investor demand for these products this side of the pond meant they could be some way off being launched in Europe.
Regardless of the regulatory environment, he questioned the suitability of combining an active strategy with intraday trading for European investors at this moment in time.
Furthermore, he stressed the importance of having clear guidelines from ESMA on how they expect non-transparent ETFs to work.
“One of the factors that concerns me the most is one jurisdiction approving a structure before there is a cohesive regime in Europe,” Rushe continued. “This could lead to a confused situation.”
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