SEC's New ETFs Proposal Could Spark Migration To Risky ETNs

The Securities and Exchange Commission’s two new pieces of rule-making proposals aimed at trimming risks in exchange-traded funds (ETFs) could have an “unintended consequence” of driving investors into less well-regulated products like exchange-traded notes (ETNs). Eric Balchunas, an exchange-traded fund analyst at Bloomberg, cautions that ETNs involve investors taking on significant credit risk to the ETN’s issuers.

SEC’s first proposal aims to address ETFs’ liquidity concerns

The securities watchdog’s first proposal published last September aims to address liquidity concerns by mandating that no more than 15% of a fund’s holdings take longer than seven days to liquidate without moving the market. The new...