To read this content please select one of the options below:

The Growth of Global ETFs and Regulatory Challenges

Advances in Financial Economics

ISBN: 978-1-78350-120-5

Publication date: 11 August 2014



Exchange traded funds (ETFs) are one of the most innovative financial products listed on exchanges. As reflected by the size of the market, they have become popular among both retail and institutional investors. The original ETFs were simple and easy to understand; however, recent products, such as leveraged, inverse, and synthetic ETFs, are more complex and have additional dimensions of risk. The additional risks, complexity, and reduced transparency have resulted in heightened attention by regulators. This chapter aims to increase understanding of how ETFs function in the market and can potentially impact financial stability and market volatility.


We discuss the evolution of ETFs, growing regulatory concerns, and the various responses to these concerns.


We find that concerns related to systemic risk and excess volatility, suitability for retail investors, lack of transparency and liquidity, securities lending and counterparty exposure are being addressed by both market participants and policy makers. There has been a shift toward multiple counterparties, overcollateralization, disclosure of collateral holdings and index holdings.


The analysis contained in this chapter provides an understanding of the role of ETFs in the financial markets and the global economy that should be valuable to market participants, investors, and policy makers.




The chapter has benefitted from the comments of Jim Angel, Rasmeet Kohli, Nirmal Mohanty, Adam Patti, and K. N. Vaidyanathan. The author would like to thank David Mann of BlackRock for helpful discussions. Doria Xu and Sonya Chawla provided excellent research assistance. Aggarwal acknowledges support from the Robert E. McDonough endowment and the National Stock Exchange of India.


Aggarwal, R. and Schofield, L. (2014), "The Growth of Global ETFs and Regulatory Challenges", Advances in Financial Economics (Advances in Financial Economics, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 77-102.



Emerald Group Publishing Limited

Copyright © 2013 Emerald Group Publishing Limited