Calling on regulators to learn from Monday’s market turmoil, the world’s largest asset manager, asked that they be labeled differently from plain-vanilla ETFs such that investor can better associate risks pertaining to them.
Following Monday’s steep decline in financial instruments that bet against a bear market, BlackRock Inc issued a warning against an inverse Exchange-Traded Products (ETPs).
According to market participants, Monday’s stock market debacle left two of the most popular ETPs, VelocityShares Daily Inverse VIX Short-Term ETN and the ProShares Short VIX Short-Term Futures ETF, facing potential liquidation.
While the former fell almost vertically by 84% in after-hours trading the latter fell almost by 79%.
Both products aim to provide inverse exposure to VIX short-term futures and, when that measure spikes, the investment loses value, at which time ETP issuers could liquidate the shares.
It was not immediately clear if the issuers would opt to liquidate these products.
Although BlackRock did not specifically mention the products by name, it however reiterated its long-held view that inverse and “leveraged” ETPs that double or triple market returns “are not ETFs, and they don’t perform like ETFs under stress,” and “that’s why iShares does not offer them.”
BlackRock’s exchange-traded funds (ETFs) are under its brand – Ishares.
Furthermore, it also called on regulators to change the classification system in order to create a new regulatory classification that labels levered and inverse ETPs differently those of regular ETFs, so that investors are made aware of the risks associated with them.