ETF issuers call for greater clarity on ETP classifications

Rory Tobin Samara Cohen

A group of leading ETF issuers have called on exchanges to implement clearer identification and categorisation of exchange-traded products (ETPs).

US ETF issuers including BlackRock, State Street Global Advisors, Fidelity Investments, Invesco and Charles Schwab Investment Management have asked CBOE, Nasdaq and the New York Stock Exchange (NYSE) to provide a solution that differentiates between the types of ETPs.

The majority of ETPs in the US are currently classified as ETFs under the ETP classification.

This has also been a major focus for the European Fund and Asset Management Association (EFAMA) which wants the market to separate ETFs under the UCITS structure and other ETPs.

The coalition has highlighted four categories for ETPs; exchange-traded funds (ETFs), exchange-traded commodities (ETCs), exchange-traded notes (ETNs) and exchange-traded instruments (ETIs).

The ETF issuers argued the lack of a distinct classification system has led to ETFs becoming a blanket term for a range of products that are entirely different.

Rory Tobin (pictured right), global head of SPDR ETF business at SSGA, commented: “As the ETP industry has grown, and new and innovative structures have emerged, a robust industry categorisation system is required, providing investors with a toolkit to better inform their decision making as to the risk characteristics inherent in different ETP structures.”

Samara Cohen (pictured left), co-head of iShares global markets and investments at BlackRock, added: “At its core, this effort is about increasing transparency for investors. One of the benefits of ETPs is the breadth of access they offer to the world’s investment markets.

“However, the presence of multiple product structures can be confusing and through this initiative, we want to introduce a shared language to help investors know what they own.”

The calls come after a number of leveraged ETCs have been forced to close following extreme volatility in the oil markets.

In Europe, WisdomTree was forced to close three ETCs including the WisdomTree WTI Crude Oil 3x Daily Short ETP (3OIS) after it triggered a “severe overnight gap event” on 23 April.

The move highlights how issuers are concerned about the reputational damage more esoteric parts of the ETP ecosystem can have on the whole ETF industry.

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