PSE to revise rules on listing of exchange-traded funds

The Philippine Stock Exchange (PSE) will review its rules on the listing of exchange-traded funds (ETFs) as part of efforts to expand the available financial products to the public.

A PSE source said the bourse has submitted to the Securities and Exchange Commission (SEC) the proposed rules for ETFs to allow the listing of the same.

ETFs are open-ended funds which track indices or sectoral basket of securities that are listed and traded on a stock exchange. Investors may diversify their portfolios by investing in a single unit of ETF which conveys ownership in a group of securities representing specific industries or market sectors.

Since ETFs are exchange-traded, they are continually priced and can be traded intra-day. They enable investors to easily rebalance their portfolio at a low cost or to take advantage of a market trend.

Similar to stocks, ETFs can be bought or sold in the board subject to modest management fees, regular stock transaction taxes and expenses.

Under the proposed rules, a mutual fund shall have a minimum subscribed and paid-in capital of at least P50 million in order for it to get listed.

The PSE is now looking for sponsors that will jumpstart the listing of ETFs.

ETFs are designed to generally correspond to the price and yield performance of their underlying indices, either broad stock market or stock industry sector.

As ETFs are based on underlying basket of securities or an index, they are subject to the same market fluctuations as securities. Investors may lose money over a short period due to fluctuation in the fund’s net asset value in response to market movements and over longer periods during market downturns.

Sun Life Asset Management Company Inc., a subsidiary of listed insurance giant Sun Life of Canada, earlier signified its intention to list its ETFs in the exchange. This will be coursed through the trading participants initially as distributors of mutual funds and ultimately as traders upon listing with the exchange.

The PSE is studying the marketing and possible listing of more mutual funds to provide another source of income to the brokers through distribution fees or trading commissions. Brokers, however, will first need to pass an examination and obtain a license from the SEC before they can enter into a distribution agreement with the mutual fund company to sell and offer the mutual funds to clients.

At present, the PSE deals only in a limited number of securities which include common stocks, preferred stocks, warrants, depository receipts, the small-denominated Treasury bonds and Treasury bills.