Along with growth in the exchange traded fund (ETF) industry comes increased attention. Among those paying attention are the regulators.

ETFs, which came to market in 1993, have assets of nearly $800 billion and daily trading volume amounting to roughly one-third of U.S. stock trades. Financial Advisor reports that the industry’s  higher profile and the increased interest from individual investors has the big guys in Washington taking a look. [Criticisms of ETFs: Fact or Fear?]

A few of the reasons why:

  • A preliminary report on the May 6 “flash crash” issued with the Commodity Futures Trading Commission suggests understanding ETFs’ role will be a focus of the regulators’ investigation. [Circuit Breakers and ETFs.]
  • In May, SEC Chairman Mary Schapiro singled out ETFs’ widespread trading problems during the May 6 “flash crash” in testimony she gave Congress, noting that about a quarter of all ETFs saw temporary 50%-price declines during the incident.
  • The funds require special legal exemptions in order the operate, and the SEC has always reviewed them before they’re marketed to investors.
  • The SEC doesn’t seem excited about leveraged ETFs, which help investors double down or bet against stock- and bond-market indexes. [Leveraged ETFs: Know the Risks.]

Closer looks by the SEC are nothing unusual – after all, it’s the regulatory agency charged with making sure that our financial system operates smoothly and above board. Fans of ETFs (including us) know that these products operate as they should and that the SEC will find nothing untoward.

ETFs play an increasing role in many investors’ portfolios and are not going to go away. In fact, these roadblocks, once cleared, are just going to solidify the industry.

For more stories about ETFs, visit our ETF 101 category.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.