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Alternative Market Briefing

Australian regulators examine ETF regulation

Thursday, March 29, 2012

Beverly Chandler, Opalesque London: The Australian Securities and Investments Commission (ASIC) has published a report on exchange traded funds (ETFs) which outlines how this growing industry is regulated in Australia and the impact of proposed international principles to address concerns by overseas regulators. Report 282 Regulation of Exchange Traded Funds, explains ASICís current understanding about the operation of ETFs and ongoing work in this area.

The Commission says that ETFs can provide a convenient and low-cost way for investors to diversify and receive returns close to the performance of market indexes or other assets, often with lower fees than traditional managed funds. "But while standard, 'physicalí ETFs generally invest in the underlying investments they are designed to track, 'syntheticí ETFs also use derivatives, such as swap agreements, to achieve similar outcomes. Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance 'tracking errorí" the report says. However, it warns that the downsides include increased complexity and counterparty risk.

ASIC Commissioner Greg Tanzer said: "Identifying the regulatory risks arising from potentially complex financial products, such as ETFs, is part of ASICís role to promote confident and informed inve......................

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