The Investment Industry Association of Canada (IIAC) has recommended a number of steps for ETF providers to take in the unlikely event of an international crisis situation.
ETF liquidity is generally seen as being more robust than the underlying equity and bond sectors, states the IIAC in a study released January 7. But the IIAC says concerns have been raised as to how long this will last if there is a crisis situation that will lead to heavy selling and lower values in underlying investments.
These concerns have intensified as more ETF structures and providers have entered the marketplace in the last few years. “Regulators in Canada and in global markets closely monitor trends in the ETF markets as part of their ongoing systemic oversight of financial markets,” said Ian Russell, president and CEO of the IIAC.
The study states that while ETFs have not been tested in a protracted bear market, there has been no evidence of issues in recent market downturns. Despite this positive stance, the IIAC says there are steps that ETF providers can take to help ensure liquidity continues to be a non-issue.
These include that ETF providers keep current on changes in rules and regulations and that investors be told of these so they can adjust their investments if they deem them to be necessary. The IIAC also recommends that ETF providers retire products and strategies that underperform and develop new products to take their place.