Following a spate of bad press surrounding the collective investment vehicle, BlackRock, which owns iShares, the largest ETF provider in the world, said it is time to reinstate greater transparency.
Concerns over the opaque nature of some ETFs were magnified after an employee working on the ETF desk at UBS was charged with rogue trading estimated to have led to a $2bn loss for the bank.
BlackRock said when ETFs were first introduced (1989 in their earliest form) they offered investors a low cost and transparent way to access a wide range of asset classes. Typically they worked by tracking a specific index or security.
But after a period of rapid development, more complex ETFs have since become available and BlackRock said these products had sometimes failed to maintain the standards set by their earlier counterparts.
In a statement the firm commented: "Critics have questioned whether existing regulations ensure that investors fully understand what they are buying and appreciate the risks and costs associated with those products.
"The industry has much work to do to address such criticisms."
Blackrock put forward five recommendations:
- clear labelling of product structure and investment objectives;
- frequent and timely disclosure of all holdings and exposures;
- clear standards for diversifying counterparties and quality of collateral;
- disclosure of all fees and costs paid, including those to counterparties;
- universal trade reporting for all equity trades, including ETFs.
