Market structures and systemic risks of exchange-traded funds

Srichander Ramaswamy

No 343, BIS Working Papers from Bank for International Settlements

Abstract: Crisis experience has shown that as the financial intermediation chain lengthens, it becomes complicated to assess the risks of financial products due to a lack of transparency as to how risks are managed at different levels of the intermediation chain. Exchange-traded funds, which have become popular among investors seeking exposure to a diversified portfolio of assets, share this characteristic, especially when their returns are replicated using derivative products. As the volume of such products grows, such replication strategies can lead to a build-up of systemic risks in the financial system. This article examines the operational frameworks of exchange-traded funds and identifies potential channels through which risks to financial stability can materialise.

Keywords: Mutual funds; total return swaps; securities lending; systemic risk (search for similar items in EconPapers)
Pages: 17 pages
Date: 2011-04
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (34)

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