ASIC working on clearer ETF labels
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Krystine Lumanta is a journalist with InvestorDaily, a Morningstar publication.
ASIC is working closely with the Australian Securities Exchange (ASX) and product issuers to develop clearer labels and appropriate naming conventions for exchange-traded funds (ETF) to increase investor protection.
"We are continuing to work with the ASX to develop clear labels and appropriate naming conventions for the ETF, structured products and managed funds markets, as new products are developed and new risks identified, with the overriding goal of avoiding investor confusion," an ASIC spokesperson told InvestorDaily.
"We consider that product names that more clearly reflect the nature of the product can help to alert retail investors to the type of product and associated risks."
Early adopters of ETFs have had to interpret the differences between ETFs, exchange-traded products (ETPs), exchange-traded commodities and exchange-traded notes, as the Australian market continues to develop further.
ETF Consulting's latest Australian sector outlook report for June 2012 said that as the range of ETPs expanded, discussion had intensified over the topic of categorisation, naming conventions and the extent of regulation required for different types of ETFs to protect investors.
Currently, issuers must meet certain naming conventions in their product descriptions in order for ASIC to deem the admission of the product to trading status on the ASX's new quotation system, AQUA.
"To manage the risk of investor confusion, ASIC considers that structured products should not be called ETFs," the ASIC spokesperson said.
"They are required to be labelled as structured products so as to avoid investor confusion and so you know what you are buying. However, issuers often also use names such as exchange-traded notes, exchange-traded commodities, exchange-traded international securities or trackers."
ASIC recently published "Report 282 Regulation of exchange-traded funds", which emphasised the risks of structured products and the significance of naming conventions, as it acknowledged products that "have the look and feel of ETFs" could have greater risks.
"We want investors to be informed and confident if investing in ETFs, so this clear and straightforward information details the risks of ETFs and what investors need to know before they invest," the spokesperson said.
In addition, the regulator has engaged with its international counterparts on the issue, with ASIC chairman Greg Medcraft co-chairing the newly established International Organisation of Securities Commission task force on unregulated markets and products' working group on retail structured products.