Exchange-traded transparency

Lyxor has launched London's first exchange-traded note, which unlike its US counterparts is fully collateralised to minimise counterparty risk. But is there a downside to collateralisation? And just how transparent are exchange-traded products when it comes to counterparty risk? John Ferry reports

When Lyxor, the fund management subsidiary of French bank Société Générale and a leading provider of exchange-traded funds (ETFs), decided it wanted to list a product that would give European investors exposure to the price of gold, it faced two problems. First, the Ucits III regulations that govern the European fund market prohibit linkage to a single commodity. The answer? Wrap the product as an exchange-traded note (ETN) rather than an ETF.

Deciding to debut an ETN was the simple part. The