ETFs Were Flash Crash 'Victims'—Not Culprits: Managing Director

ETFs are “very successful” and were in fact “victims” during the May 6 flash crash, said Ben Fulton, managing director at Invesco PowerShares. He shared his insights and responded to critics of exchange-traded funds.

“[ETFs] definitely threaten a lot of the core traditional asset management-type businesses, but more and more of those are embracing it and realizing the flexibility and transparency," Fulton told CNBC.

"And the intraday pricing of the product provides a lot of virtues that investors have been looking for.”

A study released earlier this weekby the Kauffman Foundation said it believes ETFs (exchange-traded funds) hold systemic risk for the financial markets and may possibly trigger another “flash crash.”

The study suggested placing a ban on ETFs whose holdings are not easily traded and preclude small cap companies from being included in ETFs.

“The role of the ETF in the flash crash?—We were totally the victims. [ETFs] are absolutely not accountable for what happened," said Fulton.

"What happened was, a lot of incentives were taken out of the marketplace a couple years ago, so now the old specialist markets are gone; the market makers are there and they are only there are long as they felt comfortable—market makers are not incentivized enough to stay in there," he explained.

Scorecard—What He Said:

  • Fulton's Previous Appearance on CNBC (Feb. 1, 2010)

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Wednesday's Top Dow Decliners
(as of this writing):



General Electric*

Wal-Mart Stores



No immediate information was available for Fulton or his firm.

*GE is the parent company of CNBC and