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THE Philippine Stock Exchange (PSE) has relaxed its proposed rules
for so-called exchange-traded funds (ETFs), removing initial
restrictions it had planned before such investment products are
offered to the public.
An ETF trades like a stock but tracks the price
and yield performance of an underlying index or portfolio of
investment products. According to the PSE, there are over 1,000 ETFs
traded in over 40 stock markets abroad and these instruments have
assets valued at least $700 billion.
In a statement, the PSE said it finalized its
rules for the listing of ETFs following public consultation on the
matter, and forwarded the same for approval by the Securities and
Exchange Commission (SEC).
“We in the PSE Board now want to fast-track
the introduction of the ETFs as part of a program to develop the
local capital market by expanding our menu of products and services.
But we have to put in place clear and responsive rules to assure the
orderly entry of the ETFs and tap them as tools for our market’s
growth,” Francis E. Lim, PSE president and chief executive, said.
Under the initial draft, a peso-denominated-ETF
must have at least 25 percent of its share capital or trading unit
held by at least 250 security holders. However, the PSE board
removed this provision from the final version. Also in the general
offering requirements of the first draft, an ETF is mandated to sell
its securities through an initial public offering but the bourse
leadership made this optional.
The first draft also calls for at least 250 ETF
beneficial owners upon the date of the listing, which “should be
observed at all times.” The PSE however trimmed the required
number of beneficial holders to 200 and gave an ETF one year from
listing date to meet this requirement. Lim said they eased this rule
after “concerned groups” complained that the minimum requirement
of beneficial owners and the time frame for compliance “was too
restrictive.”
The final draft also defined authorized
participants as “entities that create and redeem ETF units in
exchange for the underlying shares” in accordance with the terms
provided under the agreement between the said participants and the
ETF. Participants need to trade in the “creation units,” which
are the minimum bundle of stocks needed to accommodate requests for
creation and redemption.
In addition, an ETF’s underlying securities
should be limited to investment instruments listed at the local
bourse, but the PSE removed any restriction on the number of
securities the fund can issue.
This fund may be incorporated or established in
the Philippines or another country, but if peso-denominated should
have at least P250 million in assets. A foreign currency-denominated
ETF on the other hand should have at least $10 million, and must
have facilities for the transfer and registration of securities in
the Philippines.
If a foreign ETF applies for listing in the
local bourse, the rules require it to list in a stock exchange
abroad that is acceptable to the PSE.
-- Likha C. Cuevas-Miel
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