Last week, State Street, iShares and Lyxor – Europe’s three largest ETF providers – all published guidelines about their products. But these separate initiatives have highlighted the lack of standardisation in the sector. The three firms have come up with different and conflicting definitions for the main types of ETF.
Gordon Rose, an ETF analyst at data provider Morningstar, said that ETF providers are reluctant to standardise the definition of products for competitive reasons.
He said: “The word ‘derivative’, for example, may have a negative tone for some investors, so it is understandable that a physical ETF provider would lobby to include this in the description of synthetic ETFs”.
The sector suffered from adverse – and, some would argue, unfair – publicity in the wake of the trading scandal at UBS in September, which involved ETFs. Providers had hoped to increase transparency and clarity about the sector to help investors better understand the risks they were taking when investing in an ETF.
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