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Exemptive Relief Needed For ETFs Tied To Lehman?
By IndexUniverse Staff | September 19, 2008 10:25 am

Related ETFs: HAP
Citigroup has released a research report detailing the exposure that the exchange-traded funds industry has to Lehman Brothers across the wide swath of portfolios on the market.

According to the report, a total of 34 ETFs currently track various Lehman bond indexes, representing $41.8 billion in assets as of Aug. 31.

The ranking of ETF providers in terms of ETFs pegged to Lehman bond indexes is as follows:
  • Barclays Global Investors: 14 ETF portfolios
  • SPDRs: 10 ETF portfolios
  • The Vanguard Group: 5 ETF portfolios
  • Market Vectors: 3 ETF portfolios
  • ProShares: 2 ETF portfolios
The Citigroup tally is good information, but it's important to note that the only risk to these portfolios would occur if the underlying index provider were actually changed for the ETFs, which could trigger a major rebalancing.

However, since BGI's parent now is in the process of buying the index servicing unit as a result of its acquisition of Lehman, those specific types of issues should be minor for bond ETFs pegged to Lehman indexes. (Barclays says it plans to keep Lehman's indexing group.)

Another interesting side note is the fact that BGI, for one, may need to seek exemptive relief from the Securities and Exchange Commission to offer ETFs that are pegged to indexes it runs.

Index providers must be third parties to the asset managers of ETFs, or the asset managers must seek exemptive relief from the SEC.

Such was the case when Van Eck Global recently launched its Market Vectors RVE Hard Assets Producers ETF (AMEX: HAP). The index for the ETF was created by Van Eck in association with commodities guru Jim Rogers.

A Barclays spokesperson said these issues are being considered within the firm, but it was too soon to provide an answer to any questions regarding the ultimate branding of the Lehman indexes, and related issues such as needing to seek exemptive relief from the SEC for Lehman bond-pegged ETFs.
 

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