Third Generation ETF Platform Catching On

by on July 30, 2009 | ETFs Mentioned:

ETF Securities, the London-based ETF sponsor who has been in the news this week following the launch of its first U.S. ETF, continues to make progress on the development of its “third generation” ETF platform. The company recently announced that assets under management on the ETF Exchange have topped $100 million for the first time, a remarkable achievement given that the program was only recently launched (read more about the launch and details of the platform here).

Paternoster SquareETF Securities now offers 21 equity ETFs on its ETF Exchange platform, including 2x leveraged and 2x inverse leveraged funds. These ETFs are listed on five European exchanges (London Stock Exchange, Irish Stock Exchange Deutsche Borse, Borsa Italiana, and Euronext Amsterdam) and traded in three currencies (GBP, USD and EUR). All ETFs traded on the ETF Exchange are swap-backed using multiple counterparties, allowing for efficient tracking of benchmark indexes while avoiding concentration of counterparty risk within a singly financial institution. Under the traditional ETF model, tracking error, albeit very small in most instances, is introduced since the funds must build baskets of their benchmarks’ underlying holdings. Under what is frequently referred to as “second generation” ETF platforms, ETFs are swap-backed by a single counterparty, exposing investors to credit risk. ETF Securities believes that “this issuance model is arguably the most efficient and risk averse available today.”

ETF Securities is a well-recognized issuer of commodity ETPs, equity ETFs, and leveraged funds. The firm has more than 140 exchange-traded products with $12 billion in assets in Europe, and is going head-to-head with iShares with its first U.S. fund, which holds silver bullion (iShares’ SLV has dominated the silver ETF market to date).

Disclosure: No positions at time of writing.