The PHILIPPINE Stock Exchange (PSE) is preparing a package of reforms aimed at revitalizing the country’s exchange-traded fund (ETF) market, including measures that would expand the range of eligible issuers and products, lower capital requirements, and allow fully managed ETFs to be listed as collateral.
The move comes as the local ETF market remains limited to one product, the First Metro Philippine Equity Exchange Traded Fund (FMETF), which tracks the Philippine Stock Exchange index.
“We are working to revitalize our ETF market, and we hope that these rule changes will provide an incentive for asset managers to organize and list ETFs,” said PSE President and Chief Executive Officer Ramon S. Monzon in a statement on Monday.
Under the proposed rules, collective investment schemes, including umbrella funds and unit investment trust funds (UITFs), will be allowed to list multiple sub-funds under a single ETF issuer.
The exchange will also allow the listing of fund units and other securities in addition to the shares issued by the ETF company.
These revisions will allow fully managed ETFs to be listed on the exchange and lower the minimum capital requirement of issuers to P50 million from P250 million. For investment companies with a track record of at least five years, the requirement may be reduced to as low as P1 million.
The proposed rules would also allow ETF issuers to designate a single authorized participant to handle the creation and redemption of ETF shares or units.
“An ETF market maker should also not be an Authorized Participant under the proposed amendments,” PSE said.
The revised rules will also provide clearer guidelines for ETFs whose subsidiaries track securities listed on foreign exchanges.
The proposed amendments will be released for public consultation.
Jarrod Leighton M. Tin, an equity research analyst at DragonFi Securities, said the changes could pave the way for a wider range of ETF products in the local market.
“I expect that more ETFs with themes and sectors will be listed once the proposed changes to the ETF rules take effect,” he said in a Viber message.
He said the local ETF scenario could go beyond the current single-product setup, which could give investors access to investment strategies focused on industries and texts.
Mr. Tin said ETFs also offer a liquidity advantage over UITFs, as investors can buy and sell ETF units throughout the trading day, while UITFs are priced once a day and typically require several days of subscriptions and redemptions to settle.
“As with most ETFs, market activity and liquidity should improve, as entry into an ETF translates into a corresponding flow to the underlying stock it holds,” he said.
“Finally, ETFs provide instant diversification, as a single purchase gives investors exposure to an entire basket of stocks.”
Separately, the PSE said it is developing rules for a Negotiated Trade Reporting Facility, which will allow brokers to execute transactions in a manner similar to the negotiated trading facilities used by other exchanges.
The facility is aimed at improving market liquidity and facilitating the smooth flow of funds, the exchange said. The proposed regulations will also be released for public consultation.
Meanwhile, the PSE and its wholly-owned subsidiary, the Philippine Depository and Trust Corp. (PDTC), is working with market participants to amend the securities lending and borrowing (SBL) rules.
The proposed changes will allow syndicated lending, a bilateral arrangement where the lender and the borrower are identified, to be done through PDTC’s SBL facility. The amended rules were submitted to the Securities and Exchange Commission on April 16.
PSE and PDTC are also engaging pension funds, index funds, and insurance companies to participate in PDTC’s Lending Agency Service to expand the pool of securities available for lending. – Alexandria Grace C. Magno
