The European Securities and Markets Authority (ESMA) has proposed to limit the sale of synthetic ETFs and structured funds to retail investors, Financial Times reports. As per the European Union markets watchdog, these ETFs are risky and difficult to understand.

The ESMA also recommended that ETNs, issued by banks or special purpose vehicles, should be under tighter supervision to avoid any regulatory gaps that could affect investors in a harmful way. Under the proposal, ETF providers are required to explain more clearly how their funds track an index and the issues that could contribute to tracking errors, such as transaction costs, illiquid components or dividend flows.

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