BlackRock’s chief executive and chairman Larry Fink told CNBC’s Squawk Box this morning that he was surprised regulators ever approved leveraged ETFs.”We were surprised that these were ever approved by our regulators at a time when they are admonishing so many other areas of leverage, and yet they have approved these structural leverages in instruments that individuals can buy.”
His firm, which uses non-leveraged ETFs through iShares, said their statement against leveraged ETFs is related to disclosure.
“As one of the founders of hte mortgage market and when I was there, we had a very simple product that over 20 odd years morphed into something. ETFs were designed to be very basic… and now we overlay through the ingenuity of the Street into products that have leverage so you can get hyper returns, positive or negative… The question I have is ‘do we want to have another incident?'” Fink told CNBC.
Fink added MF Global is an example of leverage and that he is concerned leveraged instruments could pose the same problem if they are not managed properly.
Beleaguered broker-dealer MF Global, which filed for bankruptcy protection on October 31, after bad bets on the eurozone crisis.
BlackRock, the world’s largest asset manager, played a role in sorting out the whole MF Global debacle. The asset manager was inside MF Global in the final days before the bankruptcy filing.
“I personally wasn’t inside. We had a team inside trying to help them with the situation. I think because of all the regulatory people in there asking for information, I shouldn’t even talk about it on television…” Fink said on CNBC.
BlackRock was one of the firms called in to examine MF Global’s books and discovered the broker-dealer’s bookkeeping was disorganized, according to Fox Business. BlackRock was also one of the firms to point out that MF Global had dipped into its clients’ funds for trading.
“It’s a really sad situation, whatever ends up being the situation, whether they find the money or don’t find the money…My team was there helping to find the money,” Fink added.
What’s more is Fink said he’s been lobbying for segregation, where client accounts and the firms’ accounts are separate, throughout the different exchanges.
“We have been pushing for this very reason — what happened at MF Global and what happened at Lehman.”
“I think they [regulators] are listening today,” he said. “It’s taken way too long to push for segregation.”
As of October 31, MF Global’s customer accounts have been frozen. Meanwhile, investigators are attempting to locate the missing $600 million in client funds.
Last Friday, the embattled broker-dealer axed 1,066 of its remaining employees leaving them with no severance and no benefits.