When Jan Altmann helped set up Deutsche Börse’s exchange traded platform at the beginning of the decade in the hopes of encouraging the growth of these low-cost index trackers, he did not foresee how large and dynamic the industry would become.
At the time, it was a business segment for asset managers, whose approach was to buy underlying components of the index they were tracking. With regulatory developments allowing derivatives to replace this process, it has become an enticing area for surviving investment banks to expand into.
Under Ucits III, the regulatory framework covering European investment vehicles, investment banks can run ETFs using swaps to replicate the performance of the underlying index instead of investing in its component securities.
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