Video: Have ETFs developed beyond simple index trackers into complex products?

"Are ETFs complex financial instruments", is the first question in a series of videos from Structured Products magazine that address the world of exchange-traded funds. As regulators and observers try and come to grips with losses inflicted on UBS by an alleged rogue trader of ETFs, the assumption made by the Bank of England in June that these financial instruments are complex is gathering support

In the first of a series of five videos that will appear this week, Richard Jory, editor of Structured Products magazine, asks a panel of exchange-traded fund (ETF) experts whether or not these financial instruments should be considered as complex.

In the light of developments at the end of last week, when a rogue trader at UBS lost the bank around US$2 billion by making the wrong bets on ETFs and Delta 1, the question of whether ETFs are complex has come to the fore. Referring to a report from the Bank of England, published in June, which cited concern about a bubble that is forming in ETF investments, most commentators have simply agreed with the Bank that these products are complex.

The panellists, each of whom has been working in the ETF market since its inception, offer some insight into how the market in these investment products works. They also offer some idea of why these products, in general, are not complex.

The panel:

Isabelle Bourcier, director of development at Ossiam;

Martin Bednall, head of EMEA product design and structuring at iShares;

Peter Thompson, director of strategy at Source;

Nizam Hamid, head of ETF strategy at Lyxor