Sergey Dolomanov of William Fry discusses recent work by IOSCO on ETFs on ETF TV

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I’m Margareta Hricova and joining me today is Sergey Dolomanov, partner at William Fry and Deborah Fuhr of ETFGI.

Sergey Dolomanov: Thank you for having me.

Deborah Fuhr: Thank you.

Sergey, IOSCO is doing three consultations right now. One is on the 2013 ETF principles. Another is on convertible bonds and convertible ETFs, and the third is on ESG data. Why are they doing these consultations now?

Sergey Dolomanov: In the case of the ETF paper, that is a follow up to the 2013 principles and as a result of five years of collaboration between regulators of major ETF jurisdictions around the world. So that has very much been a planned exercise.

In the case of the paper on the liquidity issues experienced by corporate bonds, particularly in March 2020. This is actually a final report. So it is a follow up to the work that was commenced back in July of the previous year. And in the case of the ESG paper, this is a response to the increasing demands of ESG products.

Margareta Hricova: What are the issues being covered and the likely outcome of the 2013 ETF Principles Consultation?

Sergey Dolomanov: The paper very much reaffirms that the 2013 principles have stood the test of time and it does not seek to amend them. So this is actually a consultation paper on good practices. The two broad themes, the function of the ETF, so fx the AP mechanism, perhaps the function of the markets in which the ETF are trading. And then on the other side is the investor facing aspect. So fx, issues like disclosure to investors, cost transparency.

Of particular interest for the ETF community would probably be the discussion around portfolio transparency and different approaches. Regulators across the world have adopted to portfolio transparency which is very much demonstrated by the fact that there are different approaches, that the requirement for full data transparency, which is what we have in Ireland fx, is not necessarily the only way. So I think that is encouraging for any ETF providers that are looking to set up such products in Europe that will have something that is less than daily, public transparency.

Deborah Fuhr: Okay, great. So let’s turn to the corporate bond and ETF trading during the volatile period of 2020. Generally, everyone thinks that ETFs performed really well during that period, especially fixed income ETFs. We even saw the Fed step in. Are there concerns being raised at this point and where are we likely to go with this consultation?

Sergey Dolomanov: ETFs are certainly not the focus of the corporate bond paper. It analyzes, I think, the behavior of the market players. Why was there a lack of liquidity at a particular time and how, following the announcements of central bank interventions, market confidence was actually restored very, very quickly.

That crisis has amplified how efficient ETFs are as price discovery mechanisms, and that has been observed in past crisis as well. But I think that real life stress test gave a lot of encouragement to regulators about what happens in a time of crisis. Will the arbitrage mechanism break down? Will ETFs make the crisis worse? All of that has played out very well as far as ETFs are concerned.

Deborah Fuhr: I would agree. If we turn to ESG, what type of issues is IOSCO looking at here?

Sergey Dolomanov: The availability of up to date, accurate data is clearly very, very important. The providers of that data, their activities are not regulated as they themselves are not regulated, but they are players that are providing very important information to the market participants and clearly are key in the structuring of these products. So this is providing a regulatory framework for the ESG data providers.

Deborah Fuhr: We know that IOSCO had been considering looking at index providers. Is that something we expect in 2022?

Sergey Dolomanov: We could see that. I think from the European point of view, it’s probably well covered this year, like we have the benchmarks regulation. There are plenty of providers on the registrant and even the ones that are not still, are very much cognizant of the European requirements. They know that they need to publish benchmark statements and actually it was the amendments to the benchmarks regulation that have provided the Price Alliance and the climate transition benchmarks in the EU, fx.

Deborah Fuhr: That’s great. And I guess the final question would be who’s able to respond to IOSCO’s consultations?

Sergey Dolomanov: I think you would expect responses from different countries and the Europeans. Presumably we’re going to get a lot of responses from ETF issuers and possibly some organizations that look after investor interests. So I think it’s open to all market participants, but those would be the types of respondents that I would expect to see there.

Deborah Fuhr: Great. Thank you for joining us.

Sergey Dolomanov: Thank you very much. It was a pleasure to speak to you both.

Margareta Hricova: Debbie, is there any other news from the industry?

Deborah Fuhr: Last week we had 44 new listings and 37 new cross-listings.

When we look at end of April data, we see that we’ve had 510 new listings this year and 647 cross-listings. This is significantly more than at this point last year when it was 488 new listings and the number of cross-listings is actually slightly smaller. It was 676 last year.

When Korea has new products come to market, we tend to see that multiple firms will do the same thing. And last week we had eight issuers in Korea do leveraged and inverse exposure to WTI or crude oil. They’re all notes, which is also something that we’ve seen less demand for over the past few years. CoinShares has partnered with FTX to bring out a new product, and we’ve also seen that Dimensional Fund Advisors has brought out three more emerging market focused ETFs. So those would be the highlights from last week.

Margareta Hricova: Thanks so much, Debbie. And thanks again to Sergey for joining us today and to our sponsors, Syntax Advisors, and of course, to all of you for watching.

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Published on May 12, 2022