Australia a world leader in ETF regulation

Australia is leading the way in the regulation of exchange-traded funds (ETFs), according to ETF provider BetaShares Capital.

Referring to concerns raised in a recent Bank for International Settlements (BIS) paper on the risk of ETFs, BetaShares stated that regulators had already addressed important issues relating to overseas synthetic ETFs before any were introduced into Australia.

The BIS paper highlighted concerns about the quality and liquidity of physical assets underlying synthetic ETFs and motivations that may arise when the ETF issuer is a related party to the investment bank that is the swap counterparty.

BetaShares head of investment strategy and distribution Drew Corbett stated that in the process of launching its synthetic ETFs in December 2010, BetaShares worked collaboratively with the Australian Securities and Investments Commission (ASIC) as well as the Australian Securities Exchange (ASX).

“ASIC and the ASX have been one step ahead in relation to the key issues raised in the BIS paper, and should be complimented for adopting world’s best practice on ETF regulation,” said Corbett. “The rest of the world should be following Australia’s lead.”

BetaShares stated that the guidelines developed by the Australian regulators included local swap-enhanced ETFs being allowed a maximum counterparty exposure of 10 per cent and a requirement for the underlying assets held by the ETF to be consistent with the investment objective of the fund.