iShares launches campaign to help ETP investors identify risks

iShares has launched a Europe-wide initiative to help professional investors identify structural risks and carry out due diligence on ETPs.

As part of its due diligence campaign, it has called for a new classification system for ETPs, to separate them into ETFs, ETNs/ETCs and ETIs - it classifies ETIs as instruments such as listed futures and options.

"It was clear to us when we started this year there was a lot of clutter and confusion in the ETP industry and we wanted to help clarify these topics," says David Gardner, head of sales for iShares Emea.

"We have written this guide, which is comprised of a classification system, which is instructive and helpful to investors so there is clear, intuitive labelling around products."

iShares also asks for swap-based ETFs to be clearly labelled, "when you use the term swap-based or synthetic the retail public doesn't understand that," says Gardner.

"We think 'derivative-replicating' helps clarify to the public when you are taking additional structural risk as opposed to just market risk."

It asks for the term ETC to be used only in reference to physically-backed commodity products to help clarify where there is additional structural risk.

iShares also outlines six criteria which need to be considered before investment into any ETP: structure, tax, performance, trading and valuation, total cost of ownership and securities lending.

There have been criticisms from parts of the market that putting the different types of exchange-traded products together under the ETP umbrella is confusing. iShares says that it is important to note the differences (particularly the regulatory differences) between the products but it makes sense to look at them together.

"We believe the most important separation is ETF out towards ETCs to ETNs to ETI," says David Bower, head of UK iShares. "Investors do naturally group the exchange features of these products together. Our partners at exchanges and other areas do look at the exchange trading operations of these products.

"We want to call out differences; we recognise there is an overarching category but we don't want to major in that, we want to major on the differences between ETFs, ETCs, ETNs and ETIs."

The introduction of this campaign comes less than two weeks after BlackRock - which owns iShares' - called for greater transparency and consistent regulation across the global ETP market.

iShares will be making proposals to regulators and talking to other market participants such as index providers and consultants about this framework.