Exchange traded products – everyone wants a piece of this pie.
Exchange traded funds started as an investment management product. They were run by investment managers, who had to build scale in order to make any money out of them.
Then the European regulations allowed funds to use swaps and investment bankers realised there was an opportunity to use their skills. Lyxor, an offshoot of Societe Generale, but not its asset manager, and db x-trackers set out to promote their synthetically replicated ETFs, but still claimed they were offering investment management.
Exchange traded commodities were next. Difficult to shoehorn into the fund structure, they are nevertheless very popular with investors, both retail and institutional.
A dedicated ETF platform, owned by the investment banks, was the next step. The cynical among us suggested the ability to funnel increased flow to its investment bank owners was a key part of its business model. Source itself was adamant its culture would be that of an asset manager, despite virtually all its employees being former investment bankers.
Now a multi-lateral trading facility, also owned by investment banks, has decided to get in on the game:
Turquoise, the pan-European equity trading services company, today announced that it will extend its service to include six Exchange Traded Commodities (ETCs) to trade via its MTF platform.
The series of six new ETCs, tracking the performance of physical gold and silver, as well as gold bullion indices, will be available to Turquoise members from 13 November, 2009. Members will be able to execute, clear and settle their transactions on the Turquoise MTF, whilst clearing will be provided through EuroCCP.
So from a way for retail investors to get stock market exposure cheaply, exchange traded products have gradually developed into sophisticated financial instruments for professional traders.