As I understand:
index ETF attempts to track value of some specific index. It may be done by either really buying index (physical ETF) or by creating some arcane financial instrument that is supposed to result in identical returns/losses (synthetic ETF).
ETF fees are collected by systematically reducing amount of assets corresponding to single ETF share.
ETF market makers are obligate to sell/buy ETF shares with some specified maximal spread.
Is there anything (standard contract, regulatory oversight) that ensures
- index ETF tracks indented index (if fund manager spend all money on Premium Pokemon Trading Cards someone must cover resulting losses)
- fees are not higher that specified in prospectus (again, is there any institution that would be obligated to cover losses?)
- There is no large permanent tracking error. I am aware that in some situation massive short-term tracking error may appear, there are known cases of stop-losses triggered what resulted in massive losses. But is there protection against something like that happening for longer term? For example - is it at least theoretically possible to end with ETF shares that for weeks cannot be sold for 95% of NAV (market maker runs away and is refusing to trade, or market maker suddenly increases allowed spread between bid/ask price)?
As I understand actions that would lead to the mentioned problems may or may not be illegal and maybe someone would be punished for it but losses incurred by investors would be their own problems.