Just how safe are your ETF assets?

Article Excerpt

If an ETF manager, like Blackrock, goes bankrupt, it would then be the responsibility of the ETF’s board of directors to appoint a replacement manager, self-manage its fund, or make the decision to wind up its ETF. However, the bankruptcy should have little or no impact on the safety of investors’ money since the fund’s custodian would continue to hold the ETF’s assets on behalf of those unitholders. But what if a major custodian—such as State Street Bank, Bank of New York Mellon or JP Morgan Chase—goes bankrupt? In the unlikely event that a custodian did go bankrupt, the regulated segregation of client assets from the custodian’s own funds should keep the assets for the ETF’s investors safe. In addition, in the event of the bankruptcy of a custodian, the assets of the ETF will be returned to the fund, although there could be a time delay. The ETF manager would also arrange for a replacement custodian. custodian…