OSC has no immediate plans to introduce ETF legislation

The Ontario Securities Commission (OSC) has no plans to introduce legislation to regulate ETFs in the immediate future — although that could change if ETFs are eventually deemed a systemic risk.

Speaking at the second annual ETF Summit co-hosted by Investment Executive and Advisor’s Edgein Toronto on Tuesday, Raymond Chan, director of investment funds and structured products at the OSC, said the ETF industry has so far done a good job of regulating itself.

Chan said the continued growth of the ETF market in recent years is “testament to the fact that the industry is self-regulating and doing the right thing.” In spite of their rapid growth, ETFs still don’t represent a large enough share of the capital markets to pose a systemic risk, Chan said.

He explained that the OSC monitors global regulatory developments regarding ETFs, and also studies the unit creation and redemption process for the ETF market. He described the unit creation of ETFs as the “key difference” between ETFs and mutual funds.

The OSC is in the process of examining whether the traditional framework for market-making should apply to ETFs, Chan said. He indicated that the OSC might eventually issue a new regulatory framework for the unit creation process.

In the meantime, Chan said he did not foresee an immediate need for the OSC to introduce any legislation regarding ETFs.

“If the industry self-regulates — if they have really good, robust practices — then I would say, from a regulatory burden lens, I don’t [see the need for] a rule,” he said. “To make a rule, we really have to understand that there is an issue.”

Chan emphasized that the OSC wants to see the ETF industry succeed. “In the end, what we’re trying to do is build confidence in the industry, so the industry can flourish on a sustained basis,” he said.

Continued growth is expected. Earlier in the day, Dave Cassie, PwC’s managing director, consulting and deals, shared findings from PwC’s global ETF survey, which polled ETF manufacturers from around the world about their expectations for the industry.

According to PwC’s findings, Canadian ETF manufacturers expect assets under management to grow from approximately $120 billion today to more than $400 billion by 2023.