Corporate News

SEC completes draft measure for exchange-traded funds

Posted on July 09, 2012

DRAFT RULES that will allow the listing of exchange-traded funds (ETFs) on the local bourse have been completed, the Securities and Exchange Commission (SEC) said, moving to solicit public comments before finalizing the measure.

The draft includes provisions that classify ETFs as a new investment product, thus allowing issuers to hurdle old rules that only recognized more traditional financial instruments, the SEC said.

“The SEC en banc has received from the technical working committee the proposed rules and regulations on ETFs. The full text of the proposed rules and regulations will be posted… and market participants will be invited to submit comments on the proposal,” the commission said in a statement released over the weekend.

An ETF, similar to a mutual fund, allows a market player to invest in an entire basket of stocks through a single security, which then tracks and matches the yields of a market index.

The proposed ETF rules -- which are being issued pursuant to the Investment Company Act -- will classify an ETF as a new investment product that must be incorporated with the SEC thus subjecting it to standards such as the regular public disclosure of its financial situation, investment policies and objectives, and fund portfolios as well as the companies’ pricing and fees, the SEC said.

Little details were bared in the statement, but the SEC said it wants the ETFs’ portfolio holdings and net asset values, as well as their respective units’ identities and weight, posted daily on issuers’ Web sites in order to promote transaction transparency.

Some interested ETF sponsors have already submitted comments, the SEC’s chief said.

“Per MRD (the SEC’s Market Regulation Department), interested parties have already given comments,” Teresita J. Herbosa, SEC chairman, said in a text message two weeks ago.

Michael V. Ferrer, Fund Managers Association of the Philippines president, for instance told BusinessWorld: “Certainly, the ability for market makers to participate actively is important, because this allows for the liquidity of ETFs.

“The role of the market-makers and brokers are important as these are the guys who will play the role of replicating the baskets [of stocks] and exchanging these for units of the ETF on behalf of clients or investors,” he said in a telephone interview.

The SEC meanwhile said that the proposed rules will identify the responsibilities of key ETF players, namely the market maker, index provider, fund manager, authorized participant, custodian, and transfer agent.

In a separate interview last Friday, Hans B. Sicat, the Philippine Stock Exchange (PSE) president and chief executive, said there have been proposals, such that there will only be a one-time ETF listing, and the mere issuance of ETF units thereafter. This was not made clear in the Investment Company Act, passed back in 1960, Mr. Sicat explained.

The PSE has been pushing for ETFs to grow the country’s equities market. -- Franz Jonathan G. de la Fuente