On the details of the Volcker rule and Basel III, the question is rarely asked, "How will potential limits on how much risk firms can carry affect ETFs?"

Credit Suisse's [profile] analysts say the changes could affect the liquidity of ETFs and perhaps cause wider bid/ask spreads, Barrons Brendan Conway reported.

Analysts Craig Siegenthaler, Mark Deluzio and Guiliano Mina wrote in more detail, as Conway provides an excerpt of their note, reading, "…New risk weighted definitions and capital requirements under Basel 3, or additional restrictions under the Volcker rule could shrink the number of external brokers iShares works with and reduce individual capacity…If ETF liquidity is impacted we don't think it will have a long-term impact to the buy-and-hold investor base, but impact the institutional base, which is sensitive to tracking error risk and trading/liquidity costs…"

To read more, click here.  

Edited by: Casey Quinlan


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