Moving The ETF Labeling Debate Forward (SPY, IWM, DIA, VTI)
Noel Archard: Last year, I said one of my hopes for 2012 was that the industry, lawmakers and regulators would continue to explore the development of a classification system for exchange traded products, or ETPs.
Well, the debate over labeling of ETPs continues to be front and center. At the IndexUniverse conference in Florida last month, attendees discussed whether more complex products should be allowed to use the ETF label, and whether or not more complex products should be restricted to only certain investors.
Just this week, Europe’s securities market regulator, ESMA, started a public comment period for Europe’s ETF market.
We welcome ESMA’s proposed guidelines and support financial regulatory reform that increases transparency and protects investors. We continue to advocate a new European classification system that would enable investors to clearly distinguish between physical versus derivative-replicating exchange traded funds (ETFs) as well as exchange traded notes (ETNs) and exchange traded commodities (ETCs), and look forward to working with the various interested parties to take this forward.
At BlackRock, we have proposed a standard classification system that would use clear labels to clarify the differences between products. Developing BlackRock’s proposed classification system came about after much thoughtful debate within our firm. ETPs are growing quickly. BlackRock is committed to supporting the growth of the ETP market and making sure investors understand these products.
Not surprisingly, since we released our proposal, there have been several attempts to pick holes in our concept. But what both supporters and detractors of our system seem to agree on is that there is the need for more — and better — disclosure to help investors understand what they are buying. If a fund calls itself an “equity” fund but actually gets the majority of its exposure through a series of undisclosed swap counter-parties, shouldn’t our industry come up with a method to ensure investors understand that dynamic before they purchase the fund?
Ensuring that investors know what it is they are buying does not end with a label. But a clear label, along with continued education and point of sales disclosure, can go a long way toward making sure investors are buying products that match both their investment objectives and tolerance for risk.
ETFDN Related: SPDR S&P 500 ETF (NYSEArca:SPY), iShares Russell 2000 Index (NYSEArca:IWM), SPDR Dow Jones Industrial Average ETF (NYSEArca:DIA), Vanguard Total Stock Market ETF (NYSEArca:VTI).
Noel Archard, CFA is a Managing Director and Head of Product for North America iShares. He currently heads the iShares product function in the US, which is responsible for product research and development, product management, the management of iShares in capital markets and product services and analytics. Noel joined iShares in 2006, then part of Barclays Global Investors (BGI), which merged with BlackRock in December 2009. He spent over 10 years at The Vanguard Group, first working with their brokerage service unit and then moving into their Exchange Traded Funds group.
Noel has a BS degree from Northwestern University and is a Chartered Financial Analyst charterholder (CFA). He is a member of the Financial Analysts of Philadelphia and the CFA Institute, and holds Series 7, 24, 63 and 65 securities licenses.