Volcker Threatens ETF’s

US banks are concerned about the impact the new Volcker rules will have on exchange traded fund transactions.

At present, banks act as “authorised participants” the ETF chain. This involves the banks in taking proprietary risk in the creation of the instrument.

There is a possibility that the rules, which ban proprietary trading, may outlaw such activity. Some other forms of proprietary risk taking, such as market making, are permissible under certain circumstances. It is not clear that ETF’s fall into this category.

Readers may be interested in two relevant webinars:-

·         Proprietary Trading – The Volcker Dilemma (29^th February);

·         Exchange Traded Funds – The Key Controls (21st March).