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ASIC lifts active ETF ban
ASIC has lifted its halt on active managed ETFs that do not disclose their portfolio holdings daily and engage in internal market making, despite growing concerns within the sector.
ASIC lifts active ETF ban
ASIC has lifted its halt on active managed ETFs that do not disclose their portfolio holdings daily and engage in internal market making, despite growing concerns within the sector.
The freeze on new active ETFs entering the market began in July with ASIC raising concerns about “internal market makers” and non-disclosure of daily holdings.
Internal market making occurs when the fund’s responsible entity acts as the market maker for its own fund on the fund’s behalf, either by submitting bids and offers itself or by engaging a transaction agent that executes its instructions.
In a statement, ASIC noted that it “intends to work with market operators and other stakeholders to ensure new funds being admitted for quotation use compliant models and changes that are required to existing models are made as soon as possible”.
“In some models, market-maker quotes are lead indicators of changes to fund portfolio values rather than responding to publicly available information such as indicative net asset values (iNAVs),” ASIC’s review noted.
Funds using the model tend not to disclose their portfolio holdings daily and are also usually actively managed funds.
But funds engaging in internal market making only represent around 6 per cent of funds under management in exchange-traded products.
The regulator has asked that they ensure that:
- input for market-making quotes is a reference price or other information that is publicly available
- internal compliance and supervision arrangements are adequate
- information barriers are established to ensure decisions to buy or sell units not made by persons or systems with knowledge of the current portfolio holdings
- there are adequate arrangements for identifying and responding to instances of substantial information asymmetry in the market, which may include cessation of market-making activities or requesting a trading halt
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