OFT Approves iShares Takeover of CS
Following BlackRock’s announcement in January that it would take over Credit Suisse’s ETF arm, the Irish Competition Authority (ICA) and the UK’s Office of Fair Trading (OFT) launched investigations amid concerns the acquisition would give iShares an overly dominant position in the European ETF market.
After the Irish regulator gave its go ahead in May, the OFT approved the deal in June, concluding that the acquisition won’t substantially lessen competition in Europe. In a separate statement, the Irish regulator said that the entrance of State Street and Vanguard proved that there was still room for new competitors in the European ETF marketplace.
As of July 1st, all 58 CS ETFs have been rebranded as iShares ETFs.
IOSCO Calls for More Transparency
The International Organisation of Securities Commissions (IOSCO) published its final guidelines for the regulation of Exchange Traded Funds (ETFs). In its paper, IOSCO calls for tougher rules on fee disclosures and product classifications, aiming to make ETFs more consumer-friendly by fostering industry best practices.
Specifically, IOSCO outlines nine principles around classification, benchmarks and securities lending. The regulatory body states that investors should be able to appreciate both the similarities and differences of ETFs with other competing products.
In addition, investors should be made aware how ETFs achieve their investment objectives and the quality of their performance vis-à-vis a reference index.
Furthermore, ETFs should disclose all fees, expenses and revenues, including those related to securities lending.
Also, the different types of risk investors might be exposed to when buying ETFs, particularly those tracking complex strategies involving the use of leverage, should be accurately and understandably disclosed.
Finally, the IOSCO paper encourages regional regulators to make sure that ETFs appropriately address risks raised by counterparty exposure and collateral management.
iShares Plans New ETF with Euroclear
One of the main issues preventing the European ETF market from catching up with the US is its fragmentation. With over 20 different stock exchanges in probably as many different jurisdictions, and with a multiplicity of post-trading systems, cross-listed ETFs in Europe suffer inefficiencies which result in additional costs for investors.
BlackRock–owner of leading ETF provider iShares–announced it will join forces with Euroclear Bank to tackle this issue. The two parties are planning to launch the first ETF to settle across borders. This should enable the ETF to be traded anywhere in Europe and be settled at a single location, namely Euroclear, the international central security deposit (CSD). This will be a major change as there is currently no single settlement system for the 20+ European stock exchanges.
If the initiative proves successful, more ETFs could be expected to use the new Euroclear structure. Potentially, this could mean increased trading efficiency, improved liquidity and, ultimately, lower transaction costs for ETF investors in Europe.
MSCI Demotes Greece
Greece’s fall from grace doesn’t seem to end. With an economy ravaged by the sovereign debt crisis, Greece has now been reclassified by index provider MSCI as an emerging market–the status the country held prior to 2001. This is the first time ever that MSCI has demoted a country from ‘developed’ to ‘emerging’.
At the same time, the index provider reclassified Qatar and the United Arab Emirates as emerging markets from their previous frontier market classification. Currently there is about $65 billion invested globally in ETFs tracking the MSCI Emerging Market NR (USD) Index, according to Morningstar data.
However, MSCI stopped short of promoting South Korea and Taiwan to developed market status, despite the two markets being under review for several years.
Shake-up at Lyxor
Lyxor Asset Management, Europe’s third largest ETF provider, continues to struggle to hold on to its top management.
Of all the high-profile employees leaving the company over the last six months, the latest one probably bears the biggest impact. Lyxor chairman Alain Dubois has stepped down after a decade of service to join MSCI as managing director and head of new business and product development.
Dubois’ exit has revived rumours that Lyxor parent company Société Générale might consider selling its ETF business, which has been bleeding assets and losing market share for the past couple of years.
Amundi has been tipped by analysts and various industry participants as the most natural bidder for Lyxor’s ETF business. Lyxor and Société Générale have however reaffirmed their commitment to ETFs.
