Sophisticated traders who have been using over-the-counter products and derivatives during times of heightened volatility are now utilizing alternative hedging products, such as complex exchange traded funds, as regulatory scrutiny ramps up.
More traders are beginning to use ETFs in place of options or futures in hedging strategies as regulators intensify their probe into derivatives, reports Telis Demos for the Financial Times.
“Hedge funds have been doing this for a long time. ETFs are a very liquid, quick way of putting a hedge on,” Briton Ryan, head of US ETF sales and trading at Newedge, said in the FT article.
However, Ryan notes that more large institutions, pension funds and foreign clients are now entering the U.S. ETF market, as well.
“If something happens in Europe and you know something’s going to happen in financials, you can put on a hedge quickly and cheaply when there’s high volatility and [therefore]a greater cost of hedging,” Ryan added.