Why the regulatory witch-hunt for ‘closet trackers’ is a dead-end. CEPS Commentary, 9 December 2014

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.