SECP specifies framework for issuance of debt, hybrid ETFs

The Securities and Exchange Commission of Pakistan (SECP) has specified the framework for the issuance of debt and hybrid exchange traded funds to create a competitive and conducive playing field and diversify the range of ETFs.

According to a press release issued on Thursday, the SECP has specified the criteria for the issuance of debt and hybrid ETFs through a circular. The circular also updates the existing framework for equity ETFs.

According to the statement, just like equity ETFs, debt ETFs are also passively managed and trade on a regular exchange. Debt ETFs allow ordinary investors to gain passive exposure to fixed income securities such as corporate bonds or treasuries in an inexpensive way, while Hybrid ETFs allow investment in an index that has both debt and equity securities.

The SECP said that investment in debt ETFs is well suited for investors with a low-risk profile, as it provides a strong defensive addition to their investment portfolios. The framework specifies the procedure for listing, trading, clearing and settlement of ETF units, besides the disclosure requirements for asset management companies and the obligations of market makers/ authorised participants.

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The SECP said that internationally, ETFs are among one of the fastest-growing investment products which are being customised to cover specific arrays of sectors, stocks, commodities, bonds, futures and other asset classes. The ETFs provide investors with various benefits such as trading flexibility; diversification of overall portfolio and transparency in terms of publishing underlying holdings on a daily basis.

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