* ETF Opportunity Partners wants to acquire European ETFs
* Regulatory pressure increasing on European ETFs
* Some banks may want to leave business
Sept 27 (Reuters) - Two former top executives from iShares, the world's biggest exchange-traded fund manager, are looking to buy out some of the ETF market's smaller players.
Lee Kranefuss, who headed iShares before it was bought by BlackRock Inc (BLK.N) in 2009, and Rory Tobin, head of iShares' international side until 2010, said they opened a new firm called ETF Opportunity Partners with a plan to grow through acquisitions.
The firm is on the hunt mainly for European ETFs being run by investment banks and others outside of the money management business, Kranefuss said.
Regulators in Europe are looking to improve disclosures and possibly curb sales of complex funds to retail investors. Even the largest ETF sponsors there, such as iShares, Societe Generale (SOGN.PA) unit Lyxor and Natixis (CNAT.PA) unit Ossiam, are bracing for new regulations. Smaller players may find the business no longer profitable. [ID:nL5E7KQ13W]
"In Europe, there's been an explosion of products from firms that aren't fiduciary asset managers," Kranefuss said. "Now there's a huge regulatory push on ETFs. We think there's going to be consolidation."
The ETF began in the United States as a more-easily traded form of an index mutual fund. Almost all U.S. ETFs directly own a portfolio of stocks or bonds, but in Europe so-called structured funds backed by derivatives contracts are more common.
The $300 billion European ETF market is also far more fragmented than the $1 trillion U.S. market, where iShares, State Street Corp (STT.N) and Vanguard Group oversee more than 80 percent of ETF assets.
Kranefuss said his new firm might have to alter how acquired funds are managed, such as by switching to safer derivatives contracts or moving to the U.S. model of owning stocks and bonds directly.
"Our default will be that people ought to be holding what the fund suggests it holds," he said. (Reporting by Aaron Pressman, editing by Gerald E. McCormick)