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Bankhall members advised to shun synthetic ETFs

Sesame Bankhall has advised Bankhall members to avoid synthetic exchange traded funds, and urged them to recommend ETFs only from Sesame’s panel of approved funds.

In January, the network published a list of 19 ETFs which have been approved for Sesame members. It does not include any synthetic, or swap-based, ETFs. Bankhall members are not restricted to the panel but Sesame has recommended that they only choose ETFs from the panel to avoid exposure to overly complex ETFs.

Sesame’s warning comes in the wake of the Bank of England’s financial stability report, published in June, which said synthetic ETFs might not be fully understood by investors “who are attracted by the lower costs”.

The European Securities and Markets Authority has warned it may ban some complex ETFs from being marketed to retail investors and is pressing for providers to issue greater levels of information to prospective investors.

A Sesame Bankhall research bulletin, issued in July to all Sesame and Bankhall members, says: “We should like to remind Sesame network advisers that the use of exchange traded funds is restricted to the mandatory panel of approved funds.

“Although advisers who purchase Bankhall services are not bound by the mandatory panel we, nevertheless, recommend its adoption when choosing exchange traded funds in order to avoid the exposure of investors to complex derivatives contracts.”

KohnCougar managing director Roddy Kohn says: “The risks associated with synthetic funds are a big cause for concern. We can only hope after the fiasco with the banks that the FSA and others are closely monitoring the short-selling of synthetic funds. Sesame should be applauded for this move.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I must admit I am no fan of synthetic ETF’s.

    But I do wonder if Sesame Bankhall also tell their members to avoid structured products? After all the issue here is the counter party risk.

  2. John Bloomfield 12th August 2011 at 2:44 pm


    The list of structured products available to sesame Network members is like ETFs restricted to heavily vetted panel of aqpproved products, which disqualifies many providers due to the counterparty risk.

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