UMVA has learned that a major overhaul of the country's exchange-traded fund (ETF) market is underway, with the Philippine Stock Exchange (PSE) preparing a package of reforms aimed at reviving this stagnant sector.
The proposed reforms are a direct response to the market's current limitations, with only a single product, the First Metro Philippine Equity Exchange Traded Fund (FMETF), available to investors. This ETF tracks the Philippine Stock Exchange index, offering a narrow range of investment opportunities.
According to information obtained by UMVA, the PSE is working to broaden the range of eligible issuers and products, lower capitalization requirements, and allow actively managed ETFs to list on the bourse. These changes are expected to provide the impetus for asset managers to structure and list ETFs, ultimately revitalizing the market.
The proposed rules would permit collective investment schemes, including umbrella funds and unit investment trust funds (UITFs), to list multiple sub-funds under a single ETF issuer. This move would increase flexibility and efficiency in the market, allowing investors to access a wider range of investment strategies.
Under the revised rules, the minimum capitalization requirement for issuers would be reduced to P50 million from P250 million. For investment companies with at least a five-year track record, the requirement could be reduced to as low as P1 million, making it easier for new players to enter the market.
Industry experts believe that these changes could pave the way for a broader range of ETF products in the local market, including thematic and sectoral ETFs. This would offer investors access to sector-focused and thematic investment strategies, potentially improving market activity and liquidity.
Analysts argue that ETFs offer a liquidity advantage over UITFs, as investors can buy and sell ETF units throughout the trading day. As more ETFs list, market activity and liquidity are expected to improve, benefiting both investors and the overall market.
In addition to the ETF reforms, the PSE is developing rules for a Negotiated Trade Reporting Facility, which would allow brokers to execute transactions through a mechanism similar to negotiated trading facilities used by other exchanges. This facility aims to improve market liquidity and facilitate the efficient flow of funds.
The PSE and its subsidiary, the Philippine Depository and Trust Corp. (PDTC), are also working on amendments to securities borrowing and lending (SBL) rules. These changes would allow directed pooled lending to be conducted through PDTC's SBL facility, expanding the pool of securities available for lending.
UMVA can exclusively reveal that the proposed amendments will be released for public consultation, providing market participants with an opportunity to provide feedback and shape the future of the ETF market.
