SEC gives partial nod to PSE ETF Rules
The Securities and Exchange Commission (SEC) has recently notified the Philippine Stock Exchange (PSE) of its approval to key parts of the PSE Rules on Exchange Traded Funds (ETFs).
In its letter to the PSE, the SEC said that it has approved Parts A and B of the PSE rules which cover general provisions and listing and disclosure, respectively, even as it is still evaluating Part C of the same rules governing market making for 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," PSE President and CEO Mr. Hans B. Sicat said.
An ETF is a passively managed fund, similar to a mutual fund that tracks an index but is traded on a stock exchange similar to stocks. A measure of how well an ETF performs is how closely it tracks the index. An ETF may also track specific sectoral indices. It is an open-end investment company that continuously issues and redeems its shares of stock in creation units in exchange for the delivery of a basket of securities representing an index whose performance the ETF endeavors to track.
The PSE rules are consistent with the ETF rules issued by the Securities and Exchange Commission. The proposed rules also provide for transparency and investor protection and are adherent to the International Organization of Securities Commissions (IOSCO) principles for regulation of ETFs.
Under the approved ETF rules, an ETF applying to list on the Exchange shall have a minimum authorized capital stock and paid-up capital of at least P250 million. The ETF company may, at its option, undertake an initial public offering of its securities when the registration of such securities becomes effective and its listing application is approved by the Exchange. Such offering will not be covered by the Exchange's IPO distribution rules under its listing rules. Likewise, the lock-up and track record requirements in the listing rules shall not apply.
The underlying securities comprising the index which the applicant ETF intends to track must be listed and traded in a registered exchange and should have sufficient liquidity. The ETF shall disclose the liquidity criteria and methodology in its Prospectus.
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.
"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. 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." Mr. Sicat said.