The Securities and Exchange Commission (SEC) is inviting market participants to submit comments on its proposed rules and regulations on Exchange Traded Fund (ETF), a new investment product similar to mutual fund.
The SEC en banc received the proposed rules from the SEC technical working committee recently.
The SEC defines an ETF as “an open-end investment company that continuously issues and redeems its shares of stocks in creation unit in exchange for the basket of securities listed in a registered securities exchange and representing an index whose performance the ETF endeavors to track.”
ETFs issue redeemable shares at net asset value or NAV. However, those shares can only be issued or redeemed by or through Authorized Participants in creation units representing large number of ETF shares as disclosed in its registration statement.
Once issued, ETF shares are traded in an exchange at market determined prices thus they can be bought and sold in an exchange anytime during the trading period.
The proposed rules and regulations on ETF classify ETF as a new investment product which is similar to mutual funds but has distinct characteristics.
It allows investors to diversify their portfolio by buying a single product that represents a wide range of securities underlying an index.
The proposed rules are issued pursuant to the Investment Company Act (ICA) which prescribes the regulation of investment companies such as the requirements to register with the SEC and comply with certain standards.
These standards include regular public disclosure of financial situation, investment policies and objectives and fund portfolios as well as the companies’ pricing and fees.
The proposed rules mandate the incorporation of ETF corporations in accordance with ICA, and, the registration of ETF shares under the Securities and Regulation Code (SRC).
The proposed rules also provide for pertinent requirements on the different aspects of operation of ETF such as ensuring liquidity of ETF shares by requiring the appointment of a market maker and listing of ETF shares in an Exchange.
The rules allow in-kind issuance and redemption of ETF shares as well as issuance of ETF shares in exchange for cash in exceptional cases.
There shall be transparency in the identities and weighting of the securities comprising the index, ETF’s portfolio holdings as well as its net asset value (NAV) by posting these information daily on ETF’s website.
An ETF shall operate with an arbitrage mechanism designed to minimize the potential deviation between the market price and NAV of ETF shares.
No comments:
Post a Comment