European ETFs 'fortunate' to avoid regulation

The European exchange-traded product industry is 'very fortunate' regulators are taking a light-touch approach compared with the US, according to Christos Costandinides at Deutsche Bank.

The ETF strategist's comments come at the end of a consultation period conducted by the US Commodity Futures Trading Commission (CFTC) into the possibility of implementing position limits in certain futures markets.

The proposition has attracted criticism from ETC providers, who argue the regulation is a misguided attempt to prevent commodity price manipulation.

ETF Securities head of research and investment strategy Nick Books points out that independent research has consistently shown investors are not key drivers of commodity prices.

"It is very easy, though, for politicians to point the finger at investors. That is a real threat, particularly in the US." He says the potential impact of regulation there remains "a bit of a wild card".

The US Securities and Exchange Commission (SEC) is also refusing to license any new leveraged and actively managed ETFs while it carries out an investigation into derivatives-based funds.

The enforced hiatus has been ongoing for over a year. Constandinides says: "The to-ing and fro-ing that goes on in the US is awkward. What it means is that existing products have a sort of monopoly, and that is really unfair, both for providers and the end investor.

"The industry is being held hostage while the SEC continues its review. Luckily, that sort of thing has not been a problem here so far."

Source managing director Michael John Lytle adds: "There are two places regulation could happen - on the underlying holdings and on the products themselves. If restrictions were placed on the former, it would change the face of the entire market.

"As for the products, we are trying to put as much information out there and make things as transparent as possible so that the regulator does not need to step in."