In short, risks increase if the bank considers the synthetic ETF structure as a stable and inexpensive source of funding for illiquid securities. ETF investors may not always have sufficient control over collateral arrangements to enable them to prevent such a situation. More broadly, investors in synthetic ETFs need to exercise an adequate level of scrutiny and due diligence on collateral selection and arrangements, which in turn depends on the level of transparency made available by ETF providers. Important considerations relate to the rules for selecting the collateral, the screening of its credit quality and its.
