SEC nudges sleeping UT to wake up

The Securities and Exchange Commission (SEC) has still not received applications from Managing Companies to set up exchange-traded funds, it was revealed at a recent meeting the regulator had with unit trust (UT) industry representatives.

The SEC, under the Collective Investments Code 2022 (CIS Code) introduced the regulatory framework for the operation of Exchange Traded Funds (ETFs) and Umbrella schemes over a year ago.

SEC Chairman, Faizal Salieh, recently emphasised the importance of industry representatives understanding the interests of various investor categories. He urged them to develop targeted strategies and create innovative products to enhance the appeal of the UT industry to the general public.

One such product that the UT industry has introduced is capital-protected investment schemes. These schemes allow the Managing Company to generate returns for their clients while safeguarding the invested capital. This provides investors with both growth potential and the assurance of preserving their initial investment.

By offering capital-protected investment schemes, the UT industry aims to attract more investors by providing them with a sense of security and stability. This aligns with Mr. Salieh's call for industry representatives to design new and relevant products that would enhance the overall attractiveness of the UT industry.

The barriers to Real Estate Investment Trusts (REITs) which were introduced more than two years ago, and what is required to be addressed in this regard to generate value for the product were also discussed.

Stock Borrowing and Lending (SBL), which was introduced in November last year is restricted for UTs due to concerns related to risk management. The SEC officials stated that the SEC will consider permitting SBL under new schemes with proper risk management controls in place.

Industry representatives discussed the issues encountered in launching US dollar-denominated products and sought SEC’s assistance in resolving the issues. The SEC undertook to make necessary representations to the Exchange Control Department of the Central Bank to get clearance on exchange control in this regard.

SEC's Deputy Director General, Tushara Jayaratne stressed the importance of investor education in the UT industry.