The good news is that Exchange Traded Funds continue to grow in assets under management. IndexUniverse.eu refer to BlackRock’s ETP Landscape report and point out that net global purchases of exchange traded products topped US$100 billion in the six months to the end of June. That is a pretty impressive performance given the shaky markets this year.
Aside from Eurozone uncertainty that weighs on investors, ETFs listed in Europe face a few additional challenges. Cross listings, unreported OTC trade volumes and a multiplicity of numerous copycat versions of some ETFs all impact the perception of secondary market liquidity.
There is a knock-on impact on the securities finance market - hedge funds don't trade ETFs long or short as aggressively in Europe compared to the US; and where they are shorting ETFs, prime brokers and clearers have difficulty in locating wide-ranging and stable supply sources. Additionally, few collateral takers of any type (securities lenders or cash repo providers) accept European ETFs. So Andrew Howieson and I have undertaken a study to examine these and related issues.
This study will evaluate the current use of European ETFs in securities finance and collateral management; question and challenge some of the restrictions that are currently applied; identify the benefits that an expanded role would bring to market participants; and recommend market practice and structural changes required to maximise their appropriate use.
But we need your help - we want your views on European ETFs in this space. We are as interested in hearing from those of you not involved with European ETFs as we are in hearing from those of you who are. The survey isn't restricted to securities lending and collateral management professionals - we want input from hedge funds, market makers, proprietary traders, investors really anyone that does, or could touch ETFs.
You can record your views in the following on-line survey and these will help inform the survey. Further, respondents can opt to have a follow-up interview where we can explore your comments in more depth. As a bit of an encouragement, five respondents will be chosen at random at the end and receive £50 worth of Amazon vouchers or have a donation made to a registered charity on their behalf.
The study - including a white paper and the survey results - will help bring a new level of clarity to the often misunderstood issues surrounding ETFs and securities finance. Changes to people's perceptions will result in more securities trading, more lending and a new source of high quality collateral. That potential outcome has to be worth a few minutes of your time.