Exchange traded funds have reshaped the financial world, allowing investors to access various market segments cheaply and efficiently. However, the investment vehicle is not without its risks, and the Securities and Exchange Commission has called for greater education into the relatively nascent market tool.
The Securities and Exchange Commission has solicited the perspectives on the state of exchange traded products, which include both exchange traded notes and ETFs, and received general support for greater education, along with praises from the ETF industry, reports Jeff Benjamin for InvestmentNews.
For instance, State Street Global Advisors, who manage the suite of SPDR ETFs, believes that ETFs are efficient, transparent and provide price discovery.
“In the most volatile markets over the last 15 years, ETFs have continued to trade effectively,” Joshua Weinberg, V.P. and managing counsel at SSgA, said. “We have observed that ETF trading volumes increased sharply in September 2001 and in late 2008 as investors looked to ETFs for their key attributes of transparency and liquidity.”
The Vanguard Group also called ETFs highly regulated, effective and efficient investment products.
However, Heid Stam, managing director and general counsel for Vanguard, argues that full transparency is harmful to funds, pointing to chances of abuse from investors trying to front-run ETFs.
Disclosing a complete list of portfolio holdings “would be particularly concerning for index funds during specific events impacting a target index, such as publicly announced corporate actions and index reconstitutions,” Stam said. “In such instances, market participants may use a fund’s list of portfolio holdings to reverse engineer its proprietary portfolio management and trading techniques, anticipate the amount of a particular security the fund must buy or sell, and profit by transacting in the security prior to the fund’s transactions. This would harm the fund and its shareholders by causing the fund to pay more, or receive less, or securities in which it transacts.”