European watchdogs are raising concerns over increasing complexity of exchange-traded funds on offer and the growth of synthetic ETFs, Financial Times reports. The synthetic ETFs use derivatives to track indices rather than holding the physical securities.
The Financial Stability Board (FSB) has cautioned that a source of systemic risk could be created if the investment banks operating synthetic ETFs ran into problems. The Bank for International Settlements drew parallels between ETFs and products such as collateralized debt obligations.
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