After much scrutiny on synthetic exchange traded funds in the European stock markets and the growing popularity of the investment vehicle, the European Securities and Markets Authority will be imposing strict rules or guidelines on complex ETF products.

Steven Maijoor, chairman of the ESMA, believes consumer needs to be protected from the “retailization” of complex ETF products, according to a Reuters report.

“Taking that into account, we are determined to introduce some new rules which will reduce risks and deliver more transparency for retail investors exposed to such products,” Maijoor said in an industry conference.

ETFs will be required to use an “identifier” and follow provisions that require adequate levels of retail protection in investing on the secondary market. Additionally, the ESMA will require fund providers to disclose if they are using securities lending, including the type and quality of collateral. [Synthetic ETFs See Outflows in Europe]

ETFs that hold derivatives are backed by collateral. Under securities lending, traders will exchange collateral in excess to what was borrowed, although the quality of the collateral has raised some concerns. [A Closer Look at the UBS Rogue Trader and ETFs]

For more information on ETFs, visit our ETF 101 category.

Max Chen 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.