ETFs and other ETPs

Typically, an ETP issuer will be either:

• A responsible entity of a registered managed investment scheme
• An operator of a scheme which ASIC has exempted from registration, or
• A foreign company which has the economic features of a managed investment scheme

ETPs are required to demonstrate to ASX that they can either:

• Ensure a ‘reasonable’ bid and volume is maintained in the market for 90% of each trading day; or
• Have in place other arrangements (generally through an agreement with a Market Maker) so that maximum spread (being the offer price less the bid price) and minimum volume obligations are met as agreed to by ASX.

Market makers play an important role in ensuring that buyers and sellers of an ETP can transact at prices close to the net asset value (NAV) of the ETP. They provide liquidity to the market by providing quotes (bids and offers) through the trading day and frequently update their quotes to reflect changes in the NAV of the ETP.

ASX offers a market making incentive scheme to help promote tighter spreads and more liquidity in ETP markets. Participants in that scheme receive incentives equivalent to the trading fees they would otherwise pay to ASX if they achieve the minimum quoting benchmarks prescribed by ASX on a monthly basis. Each ETP is assigned a spread and liquidity requirement, as set out in the table for market maker arrangements.

The capital value or distributions of the security must be linked to an approved type of underlying instrument. The types of underlying instruments that are approved include certain financial products, indexes, currencies, commodities, debentures or bonds.  Additional requirements may apply where the issuer seeks to admit a product with a strategy that would rely on the use of derivatives (both exchange traded and OTC).

Generally, ASX requires ETP issuers to publish the NAV per unit and either the full portfolio or a creation/redemption basket at the end of the trading day. Some issuers may also be required to publish an indicative NAV (iNAV) every 15 minutes throughout the trading day so that investors can assess the quoted unit price available with an iNAV per unit. 

Issuers are required to follow ASIC and ASX guidance regarding naming conventions. ASX and ASIC encourage naming that helps retail investors clearly differentiate between the different types of risks associated with the different types of ETPs.

For full details, see the links below or contact the ASX Investment Products team.

• ASX Operating Rules Schedule 10A (AQUA Rules)
• Procedure to Schedule 10A (AQUA Rules)
  
• ASX Operating Rules Section 07 (Definitions and Interpretation) 
• ASIC information sheet INFO 230 (Exchange traded products: Admission guidelines)
• ASIC report REP 583 (Review of exchange traded products)