Bourse revives bid to list ETFs

The Philippine Stock Exchange has revived plans to introduce exchange-traded funds (ETFs) in the local bourse to diversify its product offerings.

ETF is 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.

In a recent press briefing, PSE president Hans Sicat said the bourse submitted to the Securities and Exchange Commission 18 months ago a proposed set of rules and regulations on ETF. Sicat added that the PSE engaged research consulting firm CDM group to advance efforts to educate the local market and regulators about the new instrument.

Based on a briefing paper from the US SEC, ETFs offer public investors an undivided interest in a pool of securities and other assets and thus 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.

“They are helping us to make sure that all our efforts at trying to add new products have technical basis and are consistent with current global best practices,” Sicat said.

Sicat said the PSE would like to explore how ETFs could be introduced in the local market. The proposal submitted to the SEC was “as simple as a basic series of how the PSE can basically offer ETFs as a product line,” he said.

The proposed framework, Sicat added, was no different from how ETFs were being done globally. “It’s based on best practice. We’ll only re-create what has been done.”

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

“Since they were first developed in the early 1990s, ETFs have evolved. The first ETFs held a basket of securities that replicated the component securities of broad-based stock market indexes, such as the S&P 500. Many of the newer ETFs are based on more specialized indexes, including indexes that are designed specifically for a particular ETF, bond indexes, and international indexes,” the US SEC documents said.—Doris C. Dumlao