SC to allow more diversified ETFs

The move is aimed at promoting product innovation

PETALING JAYA: The Securities Commission (SC) will allow the issuance of a more diversified range of exchange traded funds (ETFs) in the market with effect from Jan 2.

The regulator said the diversified ETFs include futures-based ETFs, synthetic ETFs, physical commodity ETFs and smart beta ETFs.

It said the diversification was under the revision of its guidelines on ETFs.

“The introduction of an array of ETFs aims to promote competitive growth and facilitate product innovation in the market, providing new investment opportunities and exposure for investors with varying risk appetites,” it said in a statement yesterday.

According to the SC, the enhancements are in tandem with global trends, with the Asian ETF market expected to see an annual growth rate in assets of 18% by 2021.

Malaysia had 10 listed ETFs with a combined market capitalisation of about RM2.03bil as of October 2018.

“Futures-based ETFs, such as leveraged and inverse (L&I) ETFs, will pave the way for a more cost-effective and transparent channel for investors to access the traditionally sophisticated futures market.

“Leveraged ETFs use futures con- tracts to provide a multiple of the underlying index’s daily return (positive or negative), while inverse ETFs allow investors to gain from a downward market,” it said.

However, the SC pointed out that due to the complexity of the L&I ETFs, prospective retail investors must meet certain pre-qualification criteria before they can invest in these products.

First-time retail investors must undergo an e-learning module developed by Bursa Malaysia, as well as a performance simulator provided by management companies of L&I ETFs before they can invest in L&I ETFs.