Deutsche and Lyxor in major physical ETF U-turn

Meanwhile, Lyxor – the pioneer of the swap-based ETF method – is converting four of its synthetic ETFs into physical funds, based on the EuroMTS Macro Weighted AAA Government Index series, in early December. The conversion will see the funds retain the same charges.

The move by both product providers comes as they transition their ETF operations away from their parent investment banking groups towards their asset management arms.

Earlier in the year Lyxor re-organised its ETF businesses and created a new ‘ETF and Indexing’ unit, headed by Lyxor chairman Alain Dubois.

Deutsche Bank, meanwhile, announced in September it is creating a new Asset and Wealth Management division, of which db X-trackers will be a part.

The swap-based structure came under substantial regulatory scrutiny last year, amid concerns over collateral quality and counterparty risk.

Credit Suisse ’s ETF arm – which is rumoured to be up for sale – also converted a range of its swap-based products to physical funds.

However, in the summer of this year, the European Securities and Markets Authority came out with its final guidelines on ETFs and other Ucits issues, clamping down on securities lending rather than swap-based ETFs.

In the guidelines, it focused on the issues of tracking error, collateral disclosure and the need for 100% of revenues, net of fees, from securities lending to be delivered back to the fund.