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Market structures and systemic risks of exchange-traded funds

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  • Srichander Ramaswamy
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    Abstract

    Crisis experience has shown that as the financial intermediation chain lengthens, it becomes complicated to assess the risks of financial products due to a lack of transparency as to how risks are managed at different levels of the intermediation chain. Exchange-traded funds, which have become popular among investors seeking exposure to a diversified portfolio of assets, share this characteristic, especially when their returns are replicated using derivative products. As the volume of such products grows, such replication strategies can lead to a build-up of systemic risks in the financial system. This article examines the operational frameworks of exchange-traded funds and identifies potential channels through which risks to financial stability can materialise.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 343.

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    Length: 17 pages
    Date of creation: Apr 2011
    Date of revision:
    Handle: RePEc:bis:biswps:343

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    Related research

    Keywords: Mutual funds; total return swaps; securities lending; systemic risk;

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    1. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
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