When it comes to issuing complex investment products like exchange-traded notes (ETNs), it’s better to be safe than sorry, says Euronext CEO Stephen Boujnah.
Speaking to CNBC Monday, the chief executive of the near $3.6 trillion pan-European exchange discussed the controversial ETNs that have taken a major hit from market volatility recently, and explained why his exchange planned to be cautious in that area. ETNs are unsecured and low-ranking debt securities issued by an underwriting bank, with no principal protections.
“We are very, very cautious on this front,” Boujnah said. “We will probably miss more opportunities than others, but we will make much fewer mistakes,” he added.
“That is why when it comes to these particular products, we tend to be extremely cautious and we have a very intense dialogue with regulators to make sure that, at no point of time, our liability can be captured by investors who are finding themselves not properly aware of the products and the risks attached to products.”
The CEO was speaking in reference to the high-risk, short-volatility ETNs that saw immense popularity over the last year, as extremely low-volatility market conditions became highly lucrative for those betting on calm market conditions. But while the banks issuing the ETNs outlined that these products were meant for short-term holding by sophisticated investors, the funds and their investors suffered devastating losseswhen market volatility returned with a vengeance during early February’s abrupt market sell-off.
While long available to institutional players, short volatility trading has only in recent years become accessible through ETNs to retail investors — many of whom, it is suspected, did not fully know what they were getting into. One of the most popular of theseshort-volatility ETNs, known as the XIVand issued by Credit Suisse, lost approximately 90 percent of its value overnight. The losses led Credit Suisse and another short-volatility ETN issuing bank, Nomura, to shutter the respective funds. Credit Suisse has responded saying that investors were clearly warned about the potential risks.
Meanwhile, many firms, including asset manager BlackRock, have called for regulation of these products.
Asked whether he supported tighter monitoring and controlling of these products by regulators, Boujnah advocated rather for clearer dialogue with regulatory authorities.
“I think it’s always good to have a strong and positive dialogue with the regulators, that’s (not only) a matter of whether they should step in or not. It’s a matter of having good conversations on a regular basis with them to make sure that whenever there are loopholes, they’re addressed in due time, and in a way which is market-friendly.”
Euronext is the fifth-biggest stock market in the world by market capitalization, operating in France, Belgium, Portugal, the Netherlands, Ireland and the U.K.
