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

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    APRA Finalizes Guidance for New Prudential Standard on Remuneration

    The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.

    October 18, 2021 WebPage Regulatory News
    News

    OCC Updated LIBOR Self-Assessment Tool for Banks

    The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).

    October 18, 2021 WebPage Regulatory News
    News

    TCFD Updates Guidance for Financial Disclosures on Climate Risk

    The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    October 14, 2021 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel III Framework

    The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.

    October 14, 2021 WebPage Regulatory News
    News

    ACPR Implements Updates Related to DPM Version 3.1

    The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.

    October 14, 2021 WebPage Regulatory News
    News

    EBA Note Examines Transition Risks of Benchmark Rates

    The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.

    October 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7571