Mr. Bradley and Mr. Litan contend that it is the "rebalancing risk" of E.T.F.'s that makes them particularly dangerous.

Back in 2009, Barclays Global's research department studied the growing leveraged E.T.F. market - before the flash crash - and concluded that the funds created systemic risk because they "amplify the market impact of all flows, irrespective of source."

The view that leveraged E.T.F.'s are responsible for the market's volatility has not gone unchallenged.

William J. Trainor Jr., a professor at East Tennessee State University, conducted an extensive study of market volatility at the beginning and the end of the market day and concluded that E.T.F. rebalancing had nothing to do with it.

"Intra-daily volatility in time periods not associated with rebalancing saw the same spikes in volatility as the last 30 minutes did," he said in his report.
Mr. Kass, who has been trading since the 1970s, scoffs at this notion.

"Ask any hedge fund manager what their gut says," he protested. I took an informal poll of a half dozen brand-name fund managers and virtually all of them agreed with Mr. Kass. But some of them said that high-frequency traders, which themselves trade E.T.F.'s, could be magnifying the problem.

Eoin Treacy's view ETFs have proliferated over the last decade. An ETF used to mean a simple fund which tracked the performance of a highly liquid index such as the Nasdaq-100. Today, the industry offers products with incredible complexity. Leverage and inverse returns on just about anything and over varied timeframes are now common. Reading the prospectus is more important than ever.

These are new investment vehicles. It is as yet unknown to what extent they are capable of swaying the market. However, as they become more popular and attract more capital they can't help to be more important to the market's gyrations.

It has become a mantra at Fullermoney over the years that Governance is Everything. Innovation in any field is to be welcomed. ETFs are useful instruments and have opened up markets to small investors they would not previously have had access to. Even high frequency trading has its uses. However, encouraging innovation has to be tempered with protection for the structure of the market so that confidence is maintained.