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ASIC streamlines naming conventions for ETPs

3 minute read

The regulator has updated its guidance for the labelling of exchange-traded products.

ASIC has released updated guidance on the naming conventions for exchange-traded products (ETPs) with the aim of improving consistency and reducing confusion and uncertainty.

Following consultation earlier this year, the conventions have been split into two levels of labelling, with the primary labels of ‘ETF’ and ‘Structured Product’ based on product type and the secondary labels of ‘Active’ and ‘Complex’ related to risks and strategies.

As a result of these changes, the previous ‘Managed Fund’ label has been retired. ASIC said that there was broad consensus from stakeholders that this label was not effective and that it should be retired to reduce investor confusion.

However, respondents to the consultation requested more detailed definitions for some of the labels while highlighting the need to ensure consistency in interpretation by licensed exchanges.

Subsequently, ASIC said that it made revisions to the definitions of ‘Active’ and ‘Complex’ and included more detailed guidance for licensed exchanges in its updates to Information Sheet 230 Exchange-traded products: Admission guidelines (INFO 230).

“Naming conventions for ETPs are one of the ways that ASIC and licensed exchanges help to ensure that admission and monitoring standards for ETPs continue to support fair, orderly and transparent markets, particularly in the context of ETPs that have unique or novel features,” said ASIC commissioner Danielle Press.

“The overall reduction in the number of defined labels in our guidance is intended to encourage licensed exchanges and ETP issuers to focus more attention on whether the full name of the product is true to label.”

ASIC explained that the updated guidance reflects its view that a small number of prescribed labels, in combination with other elements of the product name, are a “useful way to alert investors to different product types, as well as to flag that a product has features or risks that may require them to undertake a further assessment before investing”.

The regulator said that it does not expect the name of a product or any of the labels attached will fully inform investors of all key characteristics and therefore the risks of a product. 

“The purpose of the labels is to promote a degree of consistency in terminology and serve as a starting point for investor education on different product features,” ASIC said.

All ETP industry stakeholders have been strongly encouraged by the regulator to consider how they can contribute to investor education in this area.