Leveraged and inverse exchange traded fund provider ProShares on Wednesday lambasted an ETF classification system proposed by BlackRock at a Senate subcommittee hearing.
“We were disappointed when one of the witnesses used today’s hearing as a platform to promote its own agenda,” said Michael Sapir, ProShares chief executive. “The classification system recommended by BlackRock is arbitrary, anticompetitive and unworkable. The recommendation may serve BlackRock’s competitive interests, but would not serve investors’ interests and likely result in confusion.”
Noel Archard, head of U.S. iShares product at BlackRock, was among the individuals who testified at the hearing Wednesday.
Archard said some of the ETFs in the newer generation are more complex, carry greater risks and may not be appropriate for buy-and-hold investors.
“Products which raise such concerns include so-called leveraged and inverse funds, products that are backed principally by derivatives rather than physical holdings,” he said. “These products require a greater deal of disclosure and up-front work with clients for them to understand investment and structural risks and BlackRock believes that they should not be labeled ETFs.”
Although ProShares blasted BlackRock’s proposed plan for labeling ETFs, it did agree with BlackRock’s conclusion that ETFs do not contribute meaningfully to market volatility. [Nasdaq Exec Says ETFs ‘Tempting Target’ for Market Volatility]
“We also agree with its testimony that ‘all evidence suggests that the primary cause of volatility’ lies with fundamental macroeconomic uncertainties,” ProShares said in a statement.
The firm and its leveraged and inverse ETF rival Direxion were not on the panel, although leveraged ETFs were discussed at length during the Senate hearing.
“ProShares agrees with testimony that transparency and useful, meaningful disclosure are the keys to protecting investors and regulating ETFs effectively,” ProShares said.