ASIC extends relief to actively-managed ETFs

In what represents a small but important change which will likely sustain the current growth in the exchange traded funds (ETFs) market, the Australian Securities and Investments Commission (ASIC) has extended class order relief to active-managed ETFs.

Previously, its class order relief was confined to funds which tracked an index.

After undertaking consultation last year, ASIC announced that it had made a new legislative instrument covering the broader range of ETFs with the new class order due to expire in five years’ time on 1 April, 2029.

ASIC has held to the five-year time-frame for the class order despite receiving submissions from key stakeholders who had argued that it should allow for a 10-year time-frame to reflect the nature of ETFs.

Among those arguing for the longer time-frame was law firm K&L Gates which suggested the expiry date for the new Class Order should be at least eight years, ending in 2032.

“In our experience, it is typical for the investment strategy of an ETF product to have a minimum suggested timeframe for holding the investment of 3 or 5 years,” the law firm said.

“We submit an expiry date of a further 5 years as proposed in CP 374 would therefore be a relatively short period in the investment timeframe for a typical ETF product. In our view a longer expiry date would provide better certainty for industry.”

The Law Council of Australia’s Financial Services Committee also questioned why ASIC was choosing not to allow the Class Order relief to run longer.

“The Committee notes that the Class Order has been operating for 10 years. The Committee notes that the Draft Instrument would expire after five years. The Committee is not aware of there having been any problem with the Class Order remaining in force for the past 10 years,” it said.

“The Committee does not understand why ASIC would not allow the Draft Instrument to run for its maximum 10-year duration, and it is not clear to the Committee what benefit would be gained from limiting the duration of the Draft Instrument to five years.”