SEC approves final rules for ETFs

MANILA, Philippines - The introduction of new investment product Exchange-Traded Funds (ETF) in the local bourse is all set for this year.

The Securities and Exchange Commission (SEC) has approved the final set of rules that would guide the offering of ETFs.

“Yes, we approved,” SEC commissioner Ma. Juanita E. Cueto said in a text message when asked if corporate regulators already cleared the rules on market making of ETFs.

ETF are securities and investment instruments that monitor a commodity of assets like an index fund but trades like a normal stock in an exchange.

In March, SEC approved Parts A and B of the Philippine Stock Exchange’s (PSE) ETF rules which cover general provisions on listing and disclosure, respectively. Corporate regulators then reviewed Part C which tackles rules governing market making for ETFs.

Market making is the process wherein a broker-dealer accepts the risk of holding a certain number of shares of a particular security to facilitate trading in such securities. Market makers display buy and sell quotations for an assured number of shares.

A trading participant should first apply for a registration as an ETF market maker in the PSE.

“For this purpose, the trading participant shall fulfill such requirements that may be imposed by the PSE and SEC, including, without limitation, the requirement to have at least one licensed salesman who has been accredited as a designated specialist by PSE,” the local bourse said.

The market maker registration and the accreditation of designated specialists are valid for one year, PSE said.

PSE president and CEO Hans B. Sicat said earlier that the new product would allow investors to go beyond just cash equities. So far, PSE has 254 listed firms and 134 active trading participants.

ETFs offer several advantages and investment options to investors including liquidity especially for those who cannot directly access specific sectors in the market due to a country’s specific regulatory environment.

At least three firms, First Metro Investment Corp. of the Metrobank Group, Sy-led BDO Unibank Inc. and Bank of the Philippine Islands of the Ayala conglomerate have expressed their plan to offer ETFs.

In January, PSE submitted to the SEC its proposed rules that would govern the listing and trading of ETFs after it gathered public comments.

The proposed ETF listing rules, which is governed by the general ETF guidelines issued by the SEC in October, provides for transparency and investor safeguards that adhere to the International Organization of Securities Commissions and best practices in other jurisdictions.

For instance, prior to listing in the local bourse, minimum paid-up capital for ETFs should be P250 million.