Global authority warns of possible market 'contagion' from ETF price drops

11 December 2018 11:33pm
Regulators should monitor whether exchange-traded funds’ susceptibility to sell-offs ignites volatility in underlying stocks, bonds and commodities, said Agustin Carstens, general manager of the Bank for International Settlements.

He said money managers faced with a plunge in ETFs that are invested in an asset market that is illiquid — such as corporate or emerging market economy bonds — might have to unload other assets that can be sold quickly without large losses.

This chain of events “would give rise to contagion,” said Carstens, who heads the umbrella group for the world’s central banks. “As securities markets become choppier, we will need to be on the lookout for ETFs possibly accentuating the volatility of the underlying asset market or its surrogates".