PSE drafts ETF listing rules

MANILA, Philippines–The Philippine Stock Exchange has drafted the listing rules for exchange traded funds (ETFs), taking another step closer to the introduction of this new asset class to the local market early this year.

The PSE board recently approved the release of the proposed ETF rules for public comments on or before Jan. 18.

“We encourage all concerned parties to give their comments to the proposed ETF rules that will govern the listing and trading of ETFs. The introduction of ETFs is timely given the current bullish trend in the market and is in line with the PSE’s vision to expand the market’s product offerings,” PSE president Hans Sicat said in a press statement.

An ETF is an investment fund that is similar to a mutual fund that tracks a basket of assets but is traded on a stock exchange similar to stocks. Often, an ETF can track the main index and replicate its performance.

An ETF could also track specific industry sectors. 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.  A creation unit is the smallest block of ETF shares that can be created or redeemed by an authorized participant as disclosed by the ETF.

The rules drafted by the PSE are in line with the ETF rules issued by the Securities and Exchange Commission. These aim to provide prospective ETF issuers with flexibility for their pioneering efforts, examples of which are lower fees, longer compliance periods, shorter timeframe for listing and allowance for errors and deficiencies.

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 proposed rules, an ETF applying to list on the exchange should have a minimum paid-up capital of at least P250 million. The ETF company may undertake an offering of its securities when the registration of such securities becomes effective and its listing application is approved by the PSE. Such offering will not be covered by the initial public offering (IPO) distribution rules under its listing rules. Likewise, the lock-up and track record requirements in the listing rules will 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.

As part of continuing listing requirements, the ETF is required to maintain a public ownership of 10 percent of its issued and outstanding shares. It should maintain all applicable regulatory licenses and accreditation. It must ensure that all necessary facilities and information are available to enable ETF shares holders to exercise their rights.

The ETF must also have an investor relations office to manage its investor relations program. Also, the general structured and unstructured reportorial requirements will apply to ETFs under the disclosure rules in addition to the reportorial requirements under the SEC’s rules on ETF.