ETF Securities is spearheading an idea to gather groups of financial institutions to sponsor ETF’s collectively where as current ETFs are generally sponsored by one single institution. The danger of the current system is what may happen to the ETF should the financial institution fail. (That could never happen right?) See the below from reuters:
LONDON, April 6 (Reuters) – ETF Securities is launching a consortium of ETF issuers to boost liquidity and transparency in the market and help reduce risks, it said on Monday.
ETF Securities said more than 15 global banks and financial institutions worldwide had shown “a strong desire” in joining the consortium. Previously all ETF issuers have been owned and run by single institutions.
“Under the current ETF issuance model, if the sponsoring/issuing financial institution fails, it is highly likely that their respective ETFs would be greatly disrupted and potentially liquidated,” ETF Securities said in a press release.
“The current ETF issuance model by single financial institutions could be strengthened by diversifying index replication across a consortium of the strongest financial players and concentrating liquidity within a single platform.”
ETF Securities said members of the exchange would be able to participate in trading, market making, index replication, management fees and the equity value of the consortium and will be able to issue selected white label products.
“From an investor’s point of view we believe that there is a danger that every bank has an ETF Issuance business,” said Hector McNeil, Managing Partner, at ETF Securities.
“Currently there are over 10 different Eurostoxx50 ETFs. We don’t need another 10. ETF Exchange will negate the need for banks to adopt this strategy.”
He said the consortium should be complete within the next few months. (Reporting by Rebekah Curtis; editing by James Jukwey)