Deborah Fuhr Hi, this is Deborah Fuhr, managing partner of ETFG., this is ETF TV – a platform for insights on the trading use and product development within ETFs. Today, we have Tara O’Reilly, partner at Arthur Cox, sharing her insights with us.
Dan Barnes Tara, welcome to ETF TV.
Tara O’Reilly Thank you very much.
Dan Barnes So to start with, what have been the big regulatory themes of the event today?
Tara O’Reilly Well, I think we’ve had a lot of regulatory change over the last, while eTFs have been pushing the boundaries. They started off very much, as you know, tracking large cap market indices. They’ve moved into inverse leveraged derivatives, all of those changes. And yet we’re not finished, because we’re moving now into the active space. Managers are looking for changes to accommodate those. So we’ve seen a lot of regulatory scrutiny. We’ve seen regulators looking at different aspects of ETFs, getting comfortable with them, making certain changes and then reserving their position on others. So a lot going on in the market at the moment.
Dan Barnes Very good. And how would you characterize the overall stance of European regulators to exchange-traded products today?
Tara O’Reilly I think they’re wary of them in the sense that it is the fastest growing, innovative product that it is. So anything like that is a locus of review for regulators, ‘is this going to be the next systemic issue?’ And if it is, have they looked at all of the aspects? I think we’ve seen some development on the product side, but now we’re very much focused on the ecosystem, looking at the market participants, looking at the APs, looking at interconnectedness and the potential for conflict. So investor protection and market stability are always the main drivers, but how they focus down into the various parts of the ecosystem, I think is the latest focus.
Dan Barnes So there’s the investor protection rules and regulation in the wholesale space as well. Do you see those going in two different directions?
Tara O’Reilly Well, I think the difficulty is that while there are rules in both, they’re not necessarily coming together to support the development of the product. So we’re seeing the development of regulation in the sell-side, but that is not developing in terms of giving the transparency that had been sought. So there is a lot of discussion around the consolidated tape and the absence of the consolidated tape and the transparency that would give around liquidity. And liquidity is certainly a focus for regulators looking at, ‘have we oversold the idea of liquidity to investors? Are we suggesting that ETFs are more liquid than actually the underlying assets would suggest?’ So I think, yes, not necessarily going in the same direction.
Dan Barnes OK. There’s always the danger, of course, that active managers have actually been trading quite a passive way themselves. So one has to question how much liquidity really is affected by this.
Tara O’Reilly Oh, absolutely. And I think I mean, that is another focus is do we have active managers that are closet index trackers? We’re certainly seeing regulators taking a look at that.
Dan Barnes Excellent, and so what do you hope to come out of today from the discussions you’ve had?
Tara O’Reilly I think one of the most interesting discussions was hearing policymakers who were talking about a recognition of the fact, that some of the legislation that has been put in place doesn’t have maybe an easy solution. And that we’re going to actually need to look at some policy intervention in terms of finding some of the solutions to the issues we have.
Dan Barnes That’s been great. Thank you very much.
Deborah Fuhr Thank you for watching ETF TV. To view our other shows, please go to ETFTV.NET, and follow us on LinkedIn and Twitter. Thank you.