ETFs and Structured UCITS under Discussion

Published in 
CEPS - Centre for European Policy Studies 1 Place du Congrès / Congresplein 1000 Brussels

A debate on exchange-traded funds and the use of structured financial instruments under UCITS

 Click here to see coverage in the Financial Times (Monday 14 November 2011)

"Investment banks can save funding costs by running synthetic exchange traded funds that use derivatives to track indices, according to the BIS. The savings come through using cash from ETF investors to fund illiquid assets banks have to hold as part of their market-making functions. Srichander Ramaswamy, a senior economist at the Bank for International Settlements, says some banks have turned to synthetic ETFs as an alternative to the “originate-to-distribute” securitisation model to boost their profitability in the aftermath of the financial crisis. “The setting up of synthetic ETF desks to trade with the ETF providers established by the parent bank appears to be providing one such alternative,” said Mr Ramaswamy, speaking at a recent ETF research seminar organised by the Centre for European Policy Studies and the European Capital Markets Institute in Brussels"

The growth in exchange-traded funds (ETFs) has raised concerns over the last few months since Srichander Ramaswamy, Senior Economist at the Bank for International Settlements, published his paper 'Market structures and systemic risks of exchange-traded funds' highlighting the risk involved in the use of structured financial instruments by some of these funds in the form of total return swaps. The European Securities and Markets Authority (ESMA) recently held a consultation on ETFs and structured UCITS to gather evidence which should help it establish whether UCITS rules need fine-tuning to adapt to these vehicles. The seminar took place in Brussels and focused on investor protection in relation to ETFs and the use of derivatives and structured financial instruments under UCITS, but also considered financial stability, including the extent to which swaps provide banks with an opportunity to raise funding from illiquid portfolios. Issues such as transparency and quality of collateral were at the forefront of the discussion.


  • Srichander Ramaswamy, Senior Economist, Bank for International Settlements
  • Clement Boidard, Investment Management Committee, European Securities and Markets Authority
  • Rostislav Rozsypal, Asset Management Unit, European Commission
  • Manooj Mistry, Head of ETF Structuring, Deutsche Bank
  • David Gardner, Head of EMEA Sales, Blackrock iShares
  • Alain Dubois, ETFs and Structured Funds Committee, French Asset Management Association
  • Moderated by Chris Flood, FTfm Reporter, Financial Times


For more information please contact Mirzha de Manuel at mirzha.demanuel@ceps.eu or phone 0032 2 229 39 17.