Now the IMF is warning about ETFs

"International regulator conspiracy? Unfortunate coincidence for the ETF industry? Or are regulators finally on to something via the power of group think?
We ask because hot on the heels of the Financial Stability Board’s warning about exchange traded funds on Tuesday comes “Annex 1.7″ of the IMF’s latest Global Financial Stability report, entitled ETF Mechanics and Risks.
Here goes the summary (our emphasis):

Exchange-traded funds (ETFs) have become increasingly popular over the past few years. They give investors increased access to emerging market assets while also offering flexibility and leverage to specialized investors. Traditionally, ETFs have physically held underlying assets, but a new breed of ETFs have emerged in Europe that use synthetic replication techniques and derivatives to reduce costs and thereby boost returns. A small percentage of these funds also use leverage to cater to the hedging needs and speculative positions of their nonretail client base.
While these enhancements have reduced costs, they add a layer of complexity and increase counterparty and liquidity risks. The disproportionately large size of some ETFs compared with the market capitalization of the underlying reference indices poses a risk of disruptions in some markets from heavy ETF trading. This annex surveys the growth and mechanics of ETFs and highlights some of the key risks pertaining to synthetic replication and the use of leverage and derivatives in ETFs..."

 at http://ftalphaville.ft.com/blog/2011/04/13/545351/now-the-imf-is-warning-about-etfs/