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MANILA, Philippines—The Philippine Stock Exchange is providing sweeteners to promote the introduction of a new collective investment instrument in the form of exchange-traded funds, or ETFs, to the local market.
The PSE announced on Friday it has agreed to waive the transaction fees for market-makers when they trade shares of ETFs, which are investment funds similar to a mutual fund that tracks a basket of assets but are traded on a stock exchange like other shares of stock.
Under the SEC-approved ETF rules, at least one of the designated authorized participants of the ETF should act as a market maker, whose main role is to ensure sufficient liquidity in the market. The market-maker’s obligations include posting orders when there is a wide spread between the best bid and offer of an ETF and maintaining a minimum presence in the market.
Only authorized participants that meet all requirements set by the PSE and the SEC are eligible to trade ETFs as market makers.
Unlike mutual funds, the price of an ETF is quoted in real time so investors immediately know how much they are buying or selling their ETF shares for.
The PSE collects a transaction fee equivalent to 0.0005 percent of the value traded of shares listed on the PSE. But this fee will be waived for ETF market-makers “to help promote ETFs and support the success of the ETF Market in the Philippines,” the PSE said.
The Securities and Exchange Commission recently approved a portion (Part C) of the guidelines on ETFs, which brings the PSE a step closer to launching this new asset class in the local market.
“Given that market making is a novel practice in our market, we want to incentivize participants at this point to help encourage more traders to consider being a market maker for ETFs. This is consistent with practices of exchanges in other countries to help promote liquidity in their markets,” PSE president Hans Sicat said.