Featured Product

    ESRB Advisory Scientific Committee Report on Exchange-Traded Funds

    June 17, 2019

    The Advisory Scientific Committee of ESRB published a report presenting the main channels through which exchange-traded funds have the potential to affect systemic risk. The study concludes that, while some of these channels are common to other investment vehicles, their presence on primary and secondary markets, along with the rapid development of the exchange-traded fund sector, warrants further analysis of exchange-traded funds.

    The report focuses on the potential systemic risks that may be associated with the spread of exchange-traded funds and highlights the key reasons why exchange-traded funds could pose systemic risks. In addition, the report concludes that exchange-traded funds may raise systemic risk through four main channels:

    • Higher volatility and co-movement of security prices, especially at times of market stress and if the constituent securities are illiquid
    • Decoupling of exchange-traded fund prices from those of constituent securities at times of stress, with destabilizing effects on financial institutions heavily exposed to exchange-traded funds or reliant on them for liquidity management
    • Inducement of investors to take large correlated exposures, which may result in contagion in the event of sharp exchange-traded fund price drops
    • Materialization of operational risks in a major provider of exchange-traded funds, which may generate widespread sales of exchange-traded funds owing to the sector’s very high level of concentration

    The report does not discuss specific policy measures, but does call for further empirical research in the following two areas:

    • Exchange-traded fund order flows in periods of stress and their impact on the volatility, co-movement, and illiquidity of both exchange-traded funds and constituent securities
    • The extent to which financial institutions have significant and common exposure to exchange-traded funds and/or rely on them to manage liquidity

     

    Related Links

    Keywords: Europe, EU, Banking, Securities, Systemic Risk, Liquidity Management, Liquidity Risk, Exchange Traded Funds, ESRB

    Featured Experts
    Related Articles
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    News

    FDIC Approves Proposal to Amend Swap Margin Rule

    FDIC approved what would be a joint proposal by the US Agencies (FCA, FDIC, FED, FHFA, and OCC) to amend regulations that require swap dealers and security-based swap dealers under the agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margin Rule).

    September 17, 2019 WebPage Regulatory News
    News

    FASB Proposes Taxonomy Changes Related to Topics 848 and 470

    FASB proposed taxonomy improvements for the proposed Accounting Standards Update on topic 848 on facilitation of effects of reference rate reform on financial reporting.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Statement on Recalculating Transitional Measures Under Solvency II

    BoE notified that it will be willing to accept applications from firms to recalculate transitional measure on technical provisions (TMTP) as at September 30, 2019.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Hosts Conference to Discuss Issues from Emergence of Stablecoins

    BIS hosted a conference in Basel to discuss policy and regulatory issues posed by the emergence of stablecoin initiatives backed by financial institutions and large technology companies.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Paper on Embedded Supervision of Blockchain-Based Financial Market

    BIS published a working paper that investigates ways to regulate and supervise blockchain-based financial markets.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Paper on Market-Implied Systemic Risk and Shadow Capital Adequacy

    BoE published a working paper that presents a forward-looking approach to measure systemic solvency risk.

    September 13, 2019 WebPage Regulatory News
    News

    HKMA Consults on Policy Module on Pillar 2 Supervisory Review Process

    HKMA is consulting on the revised Supervisory Policy Manual module CA-G-5 that sets out the HKMA approach to conducting the supervisory review process under Pillar 2.

    September 13, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3830