ETF issuers will now be able to use overseas market makers following an update to an ASIC class order around the investment products.
In a statement, the regulator said it had updated Class Order 13/721 around AQUA ETFs to remove the requirement for an authorised participant to be an Australian resident for tax purposes.
ASIC said the move was set to further boost competition in the local ETF space.
“The amending instrument removes a regulatory barrier to entry for offshore market-making entities seeking to participate in the Australian ETF market and, as a result, may encourage new entrants to the ETF market making sector,” the regulator said.
“ASIC made the amending instrument after reviewing the local authorised participant requirement and consulting interested stakeholders. ASIC found that the local authorised participant requirement does not support competition or market efficiency in the ETF market making sector.”
The regulator said amending the rules around authorised participants should also lead to better outcomes for investors in ETFs, by increasing efficiency and competition among market makers.
“ASIC recognises that authorised participants perform an essential market making function in the market for ETFs, and that competition between market makers facilitates market efficiency and can produce benefits for retail investors,” ASIC said.
“ASIC found that the [local authorised participant] requirement may lead to suboptimal outcomes for retail investors trading on the secondary market, particularly due to wider buy-sell spreads than could be expected in a more competitive market.”