Mayer Brown: regulatory scrutiny to grow as structured ETFs gain momentum

Structured ETFs and structured notes are increasingly developing alongside one another as investors focus more on desired investment outcomes and less on the product wrapper, according to Anna Pinedo, partner at Mayer Brown.

Structured ETFs and structured notes are complementary products [...] these provide exposure to assets in a defined or controlled way for investor - Anna Pinedo

The growth of buffered ETFs, defined outcome strategies and other structured exposures has brought together markets that have traditionally developed along separate paths. Investment banks, asset managers, ETF sponsors and index providers are increasingly collaborating on products that can be delivered through different structures, from structured notes and annuities to ETFs and separate managed accounts (SMAs).

“Structured ETFs and structured notes are complementary products,” said Pinedo. “These provide exposure to assets in a defined or controlled way for investors.”

The choice between the two can depend on factors including an investor’s liquidity requirements, investment objectives and time horizon, she said, with each structure offering different advantages.

In the US, structured ETFs are subject to the Investment Company Act, providing a broad regulatory framework and allowing them to be offered to retail investors. Structured notes, meanwhile, are generally issued as senior unsecured debt securities with a fixed maturity date and are often registered with the Securities and Exchange Commission under the Securities Act.

Product development

Custom indices have become an increasingly important component of structured products and ETF strategies, with index providers looking to create benchmarks that can be used across multiple products.

“Generally, most index providers will be focused on designing a custom index that will be broadly applicable as a reference index for many products,” said Pinedo.

These can include swaps, exchange-traded products such as ETNs and ETFs, annuities and structured notes.

Pinedo said index providers will generally seek to ensure that custom indices are non-discretionary and rules-based. In the US, one consideration is the Internal Revenue Service (IRS) test relating to discretion, while generic listing standards of national securities exchanges can also provide a useful reference point.

The index rulebook or methodology should clearly document how the index is calculated so that it can be replicated by a third party, she added.

This places index governance and methodology at the centre of product development as more firms seek to commercialise proprietary strategies across multiple wrappers.

Blurring roles

The growing interest in structured ETFs is also changing the roles played by different market participants.

“It is true that now the roles are more fluid given that investors are showing interest in structured ETFs,” said Pinedo.

Market participants are increasingly focused on delivering a desired return rather than on the specific wrapper used to achieve it, she said. The same investment objective could potentially be delivered through a separately managed account, unified managed account, fixed index annuity, structured note or structured ETF.

Banks, including their private banking businesses, want to participate in the distribution of these different products, while multiple market participants can be involved in their creation.

For a structured ETF, for example, the sponsor will generally contract with an index provider and one or more hedge providers. Following launch, several banks can act as authorised participants involved in the distribution of the ETF.

Increased regulatory scrutiny

As the market develops, regulatory attention is also likely to increase. Proof of this increased scrutiny is the recent launch of a US Securities and Exchange Commission (SEC) public consultation on exchange-traded funds (ETFs) investing in innovative asset classes or using novel investment strategies as the regulator looks to balance product innovation with investor protection.

“The SEC recently solicited comments on novel ETFs, noting the proliferation of ETFs that rely on derivatives,” said Pinedo. “As this market continues to gain momentum, we would anticipate that there will continue to be regulatory interest.”

Disclosure practices for these products are also evolving, she said, with future developments likely to reflect comments emerging from the SEC review process as more products come to market.

Finra considers structured ETFs and defined outcome ETFs to be complex products and is likely to continue monitoring their development, Pinedo added.

For firms developing proprietary indices, robust compliance policies and procedures and a clear index governance structure will therefore remain important.

Each index should be reviewed to ensure that discretion is limited to market-standard corporate events and material disruption events, helping to avoid potential tax or advisory issues, she said.

Licensing arrangements also need to address the protection of proprietary aspects of an index and limit the index provider’s liability. Providers should also understand how material relating to the index will be used in offering documents, educational materials and other public-facing content.

Further convergence ahead

Pinedo expects continued growth in both structured products and structured ETFs, alongside closer collaboration between the participants in the two markets.

That could include continued licensing of quantitative investment strategy (QIS) indices for structured ETFs, the development and marketing of novel ETF products and acquisitions of ETF platforms, such as Goldman Sachs' acquisition of Innovator Capital Management.

Law firms will continue to play a role in supporting this development, particularly given the different legal frameworks governing ETFs and structured notes.

“Law firms will continue to support the development and growth of this market,” said Pinedo, including by educating clients on the different registration, reporting and governance requirements applicable to ETFs and 1940 Act entities compared with entities issuing SEC-registered debt such as structured notes.

Legal advisers will also continue to assist with index development and tax advice, both of which remain important to complex products.

Looking further ahead, Pinedo sees several areas likely to attract continued interest including systematic mean reversion tactical (SMRT) allocator indices and relative strength index (RSI) technical indicators.

“SMRT indices and thematic indices are likely to continue to be a focus for a while,” she said.

“There is also growing interest in indices using artificial intelligence and large language models, as well as indices that purport to track securities of, or investments in, private companies, private equity and private credit.”

This Q&A is published in full as a preview of the SRP Custom & Strategy Report 2026, which includes selected extracts from the interview.

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