Synthetic ETF providers praised for counterparty risk efforts, but multiple model needs work

A Morningstar report says synthetic exchange-traded funds have made welcome strides in tackling counterparty risk, but transparency is still lacking in multiple counterparty ETFs

Synthetic ETFs could do better, says Morningstar

Research company Morningstar has commended the synthetic exchange-traded fund (ETF) industry for improving collateralisation practices to mitigate counterparty risk, but warns that there is still room for transparency improvements, particularly in relation to the multiple counterparty model.

Though in the past they would typically allow counterparty exposure of 5-10%, ETF providers such as Lyxor and Amundi ETFs "now hold a substitute basket that represents at least 100% of the fund's net asset