Securities Commission Malaysia (SC) announced that the minimum requirement for Exchange-Traded Fund (ETF) issuers will be lowered from RM10 million to RM2 million, in a move to attract more issuers and encourage the issuance of more ETFs.
Other key implementations that will be put into place before the end of the year are the introduction of futures-based and conventional commodity-based products.
These were among key recommendations from the task force on ETFs chaired by the SC.
Investors can expect to see more issuers and issuance of ETFs with the easing of the capital requirement.
However, other than boosting the quantity, SC also aims to spur product innovation by introducing physically-backed commodity, futures-based Leverage & Inverse, smart Beta, as well as synthetic replication (collateralised) ETFs will be facilitated.
“This will provide affordable entry points for retailers in traditionally difficult-to-access investments. The task force also recommends allowing greater flexibility in terms of investment strategies, including the introduction of Leverage and Inverse ETFs,” SC in a statement.
The ETF task force also made recommendations to enhance the ETF eco-system, intensify investor engagements, and improve cost structures for issuers and issuances.
These recommendations, which are aimed at attracting greater investor participation and incentivising issuances by the local ETF managers, would enhance the ecosystem and drive further growth of the ETF industry in Malaysia, said ETF task force chairman Zainal Izlan Zainal Abidin.
“SC will work with the relevant stakeholders to implement these measures and develop a more vibrant ETF market that provides greater opportunities and options for investors and issuers, as well as promote more inclusive participation in the Malaysian capital market,” said Zainal Izlan, who is also SC managing director of Development & Islamic Markets.
Other recommendations made by the task force include:
- removal of requirement for submissions to be made by principal advisors
- reduction in time to market in the issuance process
- broadening of the ETF distribution channels by permitting financial institutions, online platforms and financial planners to offer ETFs to clients via stockbroking firms
The use of such alternative distribution channels will provide investors greater access to a more diverse range of products at a lower entry cost, the SC said.
The task force was established in 2016 to encourage long-term development of the ETF market and to capitalise on the segment’s growth potential. The ETF task force was led by SC and comprise Bursa Malaysia, fund managers, market makers and institutional investors.
“Recognising the important role of market makers in the ecosystem in providing trading liquidity to ETFs, the SC and Bursa Malaysia are providing rebates and waiving relevant fees applicable to ETF market makers, including a 100% clearing fee rebate by both the SC and Bursa Malaysia,” SC added.
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