European regulators are reportedly taking a greater interest in complex “synthetic” exchange traded funds they fear might not be fully understood by investors. One European regulator recently expressed concerns over the potential systemic risks from synthetic or leveraged ETFs that are based on derivatives such as futures and options.
Steven Maijoor, chairman of the European Securities and Markets Authority, notes that retail investors are buying more complex ETFs in an attempt to chase after higher returns, reports Boris Groendahl for Bloomberg BusinessWeek.
“We can see that more and more complex products end up in the hands of retail investors,” Maijoor commented. “That’s a concern for us.”
Maijoor singles out the new ETF varieties that are more complex than the traditional fund types, and as a result, the potential risks will need to be analyzed further, according to the report.