A man holds an umbrella under pouring rain in front of Swiss banking giant UBS headquarters.
A man holds an umbrella under pouring rain in front of Swiss banking giant UBS headquarters. - 
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Jeremy Hobson: Now to the strange story that is still unfolding about a trader at the Swiss Bank UBS who the bank says lost $2 billion of the bank's money
in bad trades. There are a lot of questions about the case, but reports say the trader was dealing with complicated financial instruments called ETFs, or exchange-traded funds.

Here to remove some of the complication is Marketplace's Stephen Beard, who's with us live from London. Stephen, first tell us what these ETFs are?

Stephen Beard: They are sausages -- or at least, that's how one expert describes them. A manufactured product, sometimes containing lots of different things all chopped up and stuck together in one package. For example, if you wanted to get the benefit of the rising price of gold and tap into the stock market, and get some exposure to Swiss francs, you might buy ETFs. They're a bit like mutual funds -- they can be bought and sold on an exchange.

Hobson: Well, nobody has any problems with mutual funds, really, so what's the problem with these ETFs?

Beard: Well, many of them are synthetic -- they don't contain any actual, physical assets like gold. They merely reflect the movement of an index or the price of an underlying asset. They can be bewilderingly complex, and that's the problem.

Here's Peter Hahn, a finance expert at Cass Business School who advises European regulators.

Peter Hahn: What appears to have happened at the UBS bank in London is that somehow there was an error or alleged manipulation in the creation of one of these ETFs.

It all begins to look eerily like CDOs all over again -- the complicated, opaque products that blew up and caused so much trouble three years ago. Clearly, the regulators are now going to be taking a closer look at ETFs.

Hobson: Marketplace's Stephen Beard in London. Thanks, Stephen.

Beard: OK, Jeremy.