Do ETFs have counterparty risk?

[0008]

Companies can collapse. Bonds can default. Do ETFs have similar risk?

 

[Trader13]

I haven't heard of credit risk with ETF's since they generally hold a basket of securities. But ETN's (Exchange Traded Notes) are structured with unsecured debt and have credit risk of default. I'm not aware if it's ever happened, though.

 

[0008]

How about those leveraged ETFs?

 

[Butterball]

I'm not aware if it's ever happened, though.

Lehman was issuing ETNs in UK, Germany and Hong Kong and probably other jurisdictions. Later this went before courts and Lehman lost some judgments as they failed to warn (retail) investors of the risks associated with these ETN like products.

 

[Trader13]

How about those leveraged ETFs?

They are still ETF's and their basket may include futures or options to gain the leverage. Credit risk isn't so much the issue with leveraged ETFs as the roll yield can impact long term holdings.

 

[Swan Noir]

Everything has some counterparty risk. The question is how much risk.

 

[1245]

Almost none. The big risk is that they calculate NAV wrong.

 

[Swan Noir]

I agree ... risk is truly minimal.

 

[hft_boy]

Almost none. The big risk is that they calculate NAV wrong.

Heaven forbid. Between the SIP pricing scheme (does anyone actually know how .IV is calculated?) and the laxness of the standard reporting it's a miracle anybody calculates NAV *correctly*.