Australia: ASIC Issues New Legislative Instrument for Exchange Traded Funds

By: Matthew Watts, Lisa Lautier and Dhivya Kalyanakumar

On 15 March 2024 the Australian Securities and Investments Commission (ASIC) issued a new legislative instrument extending existing regulatory relief previously only available to passively managed index tracking exchange traded funds (ETFs) so that it will now also apply to a broader range of ETFs (such as actively managed ETFs) quoted on a financial market operated by the ASX or Cboe.  

ASIC sought submissions on these proposed changes through Consultation Paper 374 (CP 374). Following that consultation process ASIC has implemented the changes through the release of ASIC Corporations (Relief to Facilitate Admission of Exchange Traded Funds) Instrument 2024/147 (ASIC Instrument) which replaces [CO 13/721] ASIC Corporations (Relief to facilitate quotation of exchange traded funds on the AQUA Market) (Class Order). The Class Order was due to expire on 1 April 2024.

The limitations of the previous Class Order meant that issuers of active ETFs needed to seek individual relief from ASIC to be able to rely on certain exemptions that were otherwise generally available to issuers of passively managed index tracking ETFs. This extension of the relief will be well received by the ETF industry, in particular issuers of actively managed ETFs saving them time and additional costs of seeking individual relief from ASIC from these regulatory requirements during the ETF launch process.

Specifically, the purpose of the ASIC Instrument as described in the explanatory statement is to allow responsible entities and corporate directors of ETFs quoted on the ASX and Cboe to:

• restrict ETF withdrawals to authorised participants only, and to provide index or portfolio information to authorised participants before the information is provided to other members (equal treatment relief);

• provide continuous disclosure to the market, rather than providing individual notifications to each retail investor (ongoing disclosure relief);

• ensure that the ability to request redemptions under the ETF’s acquisition and withdrawal facility does not give the authorised participants a relevant interest in the securities held by the ETF; and

• ensure members can determine their substantial holding disclosure requirements with reference to the securities held by the ETF as disclosed most recently by the responsible entity or CCIV.

K&L Gates made a submission in response to CP 374 generally supporting these changes and we welcome ASIC’s response.

The ASIC Instrument has a term of five years with an expiry date of 1 April 2029.