CSA to examine ETF sector

Citing the growing popularity of exchange-traded funds, the Canadian Securities Administrators (CSA) are reviewing the sector and its regulation.

With almost $350 billion in assets under management, ETFs now account for about 15% of public investment fund assets, and regulators expect the sector to continue growing.

Given the sector’s significance, the CSA said it’s launching a review of the ETF space that will include analyzing the market for, and trading in, ETFs to determine whether the regulatory framework is adequate.

The regulators said their review will focus on the unique features of the sector — including the process of dealers creating and redeeming ETF units, secondary market trading and liquidity, and the arbitrage mechanism that aligns ETFs’ trading prices with the value of their underlying portfolios.

The review will also look at whether the global standards for ETFs, set by the International Organization of Securities Commissions, and guidance issued earlier this year is appropriate for the Canadian market.

“ETFs are an increasingly important investment vehicle for Canadian investors, and the CSA’s review of ETFs will provide us with important insight into the functioning of the ETF market,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC), in a release.

“The review will help the CSA determine whether any additional requirements are needed as the industry continues to grow and innovate. A regulatory framework that is appropriately tailored to the unique ETF structure will foster competition and facilitate more investment choices for investors,” he added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.