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Alternative Market Briefing

ESMA Proposes New Rules on ETFs

Tuesday, January 31, 2012

Bailey McCann, Opalesque New York: The European Securities and Markets Authority (ESMA) is proposing new rules for Exchange Traded Funds (ETFs) according to a position paper released on Monday. The new rules focus on counterparty risk involved with ETFs.

ETFs are bundles of shares, bonds or commodities that are traded like stocks. ETFs allow for lower cost access to indices without having to buy the underlying securities. According to a statement released with the paper, ESMA is offering the guidelines to protect investors and limit overall market risk.

According to Reuters, the new rules will require funds to disclose to investors if they make use of securities lending. Funds will also be required to disclose data about the diversification of the collateral posted. IndexUniverse also notes that the paper stopped short of limiting the use of derivatives by ETFs, a practice which is being utilized by several national regulators.

The new rules will also apply to all UCITS funds and include updates to the naming conventions used for these products. All ETFs that fall with in the UCITS guidelines will n......................

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