hiriskpaul wrote:Risk managers are well aware of domino effects! I also still maintain that exposure to an AAA rated exchange, with all positions continuously margined is still much lower risk than exposure against a single counterparty such as a bank. To argue otherwise is to argue against the entire basis of diversification, insurance and financial exchanges.
If you think your risk is with an exchange you are looking in the wrong place.
Ps central bank monitoring of banks has worked very well in the past hasn't it?
We both see this because we are neutral market participants. Ohno is not - he manages a very small "smart beta" passive fund that is an open-ended fund, in a market where nearly all such funds are ETFs. The rise of ETFs has quite simply eaten his lunch and so it is hardly surprising that he conjures up spurious arguments to put down ETFs.
Now I am biased as well since I worked on some of the early ETFs for a well known ETF provider. But then that is a part of how and why I know they are much safer than Ohno claims, and probably safer than his fund whether derivatives are used or not.
ETFs are also much cheaper than his fund which, the last time I looked, had expenses of over 1% per annum, not to mention third quartile performance. Meanwhile Fidelity now has zero cost ETFs in the US.