Metrobank unit to sponsor P250-M fund

First Metro Investment Corp., the investment banking arm of the Metrobank group, is set to sponsor an exchange traded fund (ETF) to which it will provide seed capital of P250 million.

The Metrobank group is among the financial institutions that have so far indicated interest to sponsor ETFs, including one that will track the closely watched MSCI Philippines index that will be listed on the Philippine Stock Exchange.

PSE president Hans Sicat said in an earlier interview that Deutsche Bank was interested to sponsor an ETF that would track MSCI Philippines. He added that apart from the Metrobank group, Banco de Oro Unibank, Bank of the Philippine Islands and mutual fund management firm Philequity Management were also preparing to offer ETFs.

In a disclosure to the PSE yesterday, FMIC said it has received board approval to set up an ETF and to provide the initial capital of P250 million. The group’s mutual fund management arm First Metro Management Inc. will manage the ETF, the disclosure said.

The Securities and Exchange Commission recently approved the regulatory framework for the offering of ETF, a financial instrument that tracks an index, a commodity or a basket of assets like an index fund. Since it trades like a stock on an exchange, its net asset value (NAV) is not calculated every day but it usually trades close to its NAV.

An ETF offers public investors an undivided interest in a pool of securities and other assets and are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on an exchange through a broker-dealer.

The SEC’s rules and regulations on ETF classify this as a new investment product which is similar to a mutual fund but has distinct characteristics. The framework is pursuant to the Investment Company Act (ICA), which prescribes the regulation of investment companies such as the requirements to register with the SEC and compliance with certain standards such as the 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 the ICA and the registration of ETF shares under the Securities and Regulation Code. The ETF must have a minimum paid-up capital of P200 million and all shares must be common voting and redeemable in creation units.

The PSE has been planning to introduce ETFs since the early 2000s but taxation issues hampered its progress.