TY - JOUR T1 - A Look at ETF Structures in Europe JF - ETFs and Indexing SP - 18 LP - 23 VL - 2012 IS - 1 AU - Manooj Mistry Y1 - 2012/06/20 UR - http://guides.pm-research.com/content/2012/1/18.abstract N2 - This article examines the development of exchange-traded fund (ETF) structuring techniques in Europe. European fund regulations allow for the use of derivatives for investment purposes, with rules in place to control counterparty exposure. To achieve replication, many ETFs launched in Europe use a swap-based structure, with physical assets set aside to secure the swap arrangement. This creates a economic risk profile, in terms of counterparty risk, similar to direct, physical replication with securities lending. The article explains the mechanics of full physical replication, of partial replication, and of the two types of swap-based replication, namely the “unfunded” swap structure and the “funded“ swap structure. Underlying implicit risks in relation to all structures are touched on, and a case study of db X-trackers ETFs provides a real-world example of how the different models function. ER -