The Australian Securities & Investments Commission (ASIC) has proposed a number of revisions to its admission guidelines for exchange traded products (ETPs) that aim to simplify naming conventions and reduce investor confusion.
The regulator currently provides guidance on naming conventions for licensed Australian exchanges that admit ETPs under information sheet 230 (INFO 230).
“Based on feedback over several years from product issuers, financial advisers, industry bodies and licensed exchanges, we have reviewed our guidance on ETP naming conventions in INFO 230 and concluded there is potential for improvement and clarification,” ASIC said.
ASIC’s Consultation Paper 356 (CP 356) proposes revising the existing naming conventions to divide these into two levels of labelling: primary labels based on product type and secondary labels for specific risks or strategies.
The primary labels would distinguish between collective investment vehicles labelled as exchange traded funds (ETFs) and products that are open-ended and structured as derivatives, redeemable preference shares or debt securities under the label of “Structured Products”.
ASIC said that one of the main issues raised with its existing naming conventions was the confusion surrounding the “managed fund” label which it proposes to retire.
“In general use, ‘managed fund’ is a broad term to refer to many types of investment products, but in the context of ASIC’s ETP naming conventions, it takes on a narrower use,” it said.
“Retiring the ‘managed fund’ label is intended to simplify ASIC’s guidance and align the primary labels to core differences in product structure, and legal and regulatory rights.”
ASIC also proposed “active” and “complex” as two secondary labels for ETFs.
It said that “active” ETFs are those that buy and sell investments based on an active investment strategy or disclose their full portfolio holdings on a delayed basis under internal market making or material portfolio information disclosure models.
Meanwhile, “complex” ETFs are those that have leveraged or inverse exposures, employ short selling, use derivatives other than for exchange rate hedging purposes and/or otherwise meet the definition of a hedge fund under ASIC’s regulatory guide 240.
ASIC said its existing secondary naming conventions had been difficult to apply and were poorly suited to newer, more innovative products.
“CP 356 will assist ASIC to gather feedback and better understand stakeholders’ experiences to date with ETP naming conventions in INFO 230,” ASIC said.
“We intend to revise our guidance in a way that simplifies the naming conventions and promotes flexibility for the next phase of ETP market development.”
ASIC is accepting submissions on the consultation paper from all interested parties until 3 March.
