BlackRock Inc., the world’s biggest asset manager, called for regulation that would clearly spell out the risks associated with inverse and leveraged exchange-traded products after the collapse of two notes linked to volatility.
Inverse and leveraged exchange-traded products don’t perform like exchange-traded funds under stress and regulators should acknowledge the difference, BlackRock said in a statement on Tuesday. BlackRock “strongly supports” a classification system that would label these ETPs differently than “plain vanilla” ETFs, the firm said.
BlackRock, which manages more than $6 trillion, is also the biggest provider of exchange-traded funds and does not offer inverse and leveraged exchange-traded products. The firm for years has been calling for better regulation of leveraged products, with Chief Executive Officer Laurence D. Fink saying in 2014 that such offerings have a structural problem that has the potential to “blow up” the industry.
Two inverse exchange-traded products tied to the Cboe Volatility Index tumbled after volatility spiked, prompting a trading halt. The two products were short volatility, a bet against equity turbulence that traders have been piling into for years. Another exchange-traded note, the Next Notes S&P500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN, will be redeemed at a 96 percent discount, Nomura Europe Finance said.
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