09 Dec 2014

Why the regulatory witch-hunt for ‘closet trackers’ is a dead-end

Jean-Pierre Casey

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ESMA, the European watchdog of securities markets, has announced its intention to take a closer look at so-called ‘closet trackers’, with a view to identify whether there is a potential need for a coordinated pan-European policy response to these particular funds, which are supposedly actively managed but in reality closely track their benchmarks. In this commentary, Jean-Pierre Casey suggests that more work needs to be done to demonstrate that a market failure exists. He also cautions on some of the difficulties associated with a potential regulatory intervention. In his view, the perceived problem is best tackled through transparency and competition.

The author, Jean-Pierre Casey, is a Visiting Professor at the College of Europe in Bruges and an Associate Research Fellow at the Centre for European Policy Studies. This Commentary is a longer version of a piece first published by the Financial Times in its weekly fm insert, 8 December 2014.