THE PHILIPPINE Stock Exchange (PSE) is preparing a package of reforms geared toward reviving the country’s exchange-traded fund (ETF) market, including measures that may broaden the range of eligible issuers and products, lower capitalization requirements, and permit actively managed ETFs to list on the bourse.
The move comes because the local ETF market stays limited to a single product, the First Metro Philippine Equity Exchange Traded Fund (FMETF), which tracks the Philippine Stock Exchange index.
“We’re working on reviving our ETF market, and we hope these rule changes will provide the impetus for asset managers to structure and list ETFs,” PSE President and Chief Executive Officer Ramon S. Monzon said in an announcement on Monday.
Under the proposed rules, collective investment schemes, including umbrella funds and unit investment trust funds (UITFs), can be allowed to list multiple sub-funds under a single ETF issuer.
The exchange would also permit the listing of fund units and other securities along with shares issued by an ETF company.
The revisions would allow actively managed ETFs to list on the exchange and reduce the minimum capitalization requirement for issuers to P50 million from P250 million. For investment corporations with at the very least a five-year track record, the requirement could possibly be reduced to as little as P1 million.
The proposed rules would also allow ETF issuers to appoint a single authorized participant to handle the creation and redemption of ETF shares or units.
“The market maker for ETF also needn’t be an Authorized Participant under the proposed amendments,” the PSE said.
The revised rules would likewise provide clearer guidelines for ETFs whose underlying indices track securities listed on foreign exchanges.
The proposed amendments might be released for public consultation.
Jarrod Leighton M. Tin, equity research analyst at DragonFi Securities, said the changes could pave the way in which for a broader range of ETF products within the local market.
“I expect more thematic and sectoral ETFs to list once the proposed ETF rule changes take effect,” he said in a Viber message.
He said the local ETF landscape could move beyond its current single-product setup, potentially offering investors access to sector-focused and thematic investment strategies.
Mr. Tin said ETFs also offer a liquidity advantage over UITFs, as investors should purchase and sell ETF units throughout the trading day, while UITFs are priced just once day by day and typically require several days for subscriptions and redemptions to settle.
“As more ETFs list, market activity and liquidity should improve, since inflows into an ETF translate into corresponding flows to the underlying stocks it holds,” he said.
“Finally, ETFs offer fast diversification, as a single purchase gives investors exposure to a whole basket of stocks.”
Individually, the PSE said it’s developing rules for a Negotiated Trade Reporting Facility, which might allow brokers to execute transactions through a mechanism just like negotiated trading facilities utilized by other exchanges.
The ability is meant to enhance market liquidity and facilitate the efficient flow of funds, the exchange said. The proposed rules can even be released for public consultation.
Meanwhile, the PSE and its wholly owned subsidiary, the Philippine Depository and Trust Corp. (PDTC), are working with market participants on amendments to securities borrowing and lending (SBL) rules.
The proposed changes would allow directed pooled lending, a bilateral arrangement wherein the lender and borrower are identified, to be conducted 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 firms regarding participation in PDTC’s Lending Agency Service to expand the pool of securities available for lending. — Alexandria Grace C. Magno