ETF rules get partial nod from SEC

Posted at 03/31/13 12:06 PM

MANILA, Philippines - Corporate regulators have given a partial nod to the guidelines that will allow the launching of Exchange-Traded Fund (ETF), a new investment product for the public.

In a statement, the Philippine Stock Exchange (PSE) said it received notification from the Securities and Exchange Commission (SEC) regarding the approval of key parts of the PSE rules on ETFs.

“We are getting closer to our end goal of finally introducing ETFs in the market and we are thankful to the SEC who has been very supportive to having more products launched in our stock market so we can go beyond offering just cash equities,” said PSE president and CEO Hans B. Sicat.

ETFs are securities and investment instruments that monitor a commodity of assets like an index fund but trades like a normal stock in an exchange.

In its letter to the PSE, the SEC said that it approved Parts A and B of the PSE rules, which cover general provisions on listing and disclosure, respectively.

SEC is still evaluating Part C, which tackles rules governing market making for ETFs.

“The approval process itself has been an enlightening exercise as we try to come up with rules that will best serve the needs of our market,” Sicat said.

“There are a few items on the market making provision of our rules that we need to resolve with the SEC and we hope these can be threshed out in the coming days,” he added.

ETF participants include the fund manager, which must be in operation for at least two years and have satisfactory experience in managing funds.

An ETF shall appoint at least two authorized participants who are registered broker-dealers and authorized PSE trading participants who shall have a minimum capital requirement of P100 million, among others.

“At least one of the designated authorized participants of an ETF shall be designated as a market maker of the ETF,” PSE said.

In January, the PSE submitted to the SEC its proposed rules that would govern the listing and trading of ETFs after it gathered public comments.

At least three firms, First Metro Investment Corp. of the Metrobank Group, Sy-led BDO Unibank Inc. and Bank of the Philippine Islands of the Ayala conglomerate have expressed plans to offer ETFs.

Sicat earlier said ETFs would provide several advantages and investment options to investors including liquidity especially for those who cannot directly access specific sectors in the market due to a country’s specific regulatory environment.

The creation of an ETF would allow investors to have more investment options aside from the existing stocks in the market.

The proposed ETF listing rules, which is governed by the general ETF guidelines issued by the SEC in October, provides for transparency and investor safeguards that adhere to the International Organization of Securities Commissions and best practices in other jurisdictions.

Prior to listing in the local bourse, minimum paid-up capital for ETFs should be P250 million.

ETFs will be exempt from the listing requirement that new offerings should allot 20 percent of the shares for trading participants and 10 percent mandatory allocation for local small investors.

The lock-up and track record requirements in the listing rules shall not apply to facilitate the listing of ETFs.

To continue being listed in the local bourse, the ETF should maintain a public float of 10 percent of the issued and outstanding shares, exclusive of treasury shares.

PSE is the country’s only stock exchange with 253 listed firms and 134 active trading participants.