SECP approves ETF reform roadmap

AMCs to offer ETFs directly, revenue-sharing with brokers for distribution

ISLAMABAD:

The Securities and Exchange Commission of Pakistan (SECP) has granted in-principle approval for the implementation of a comprehensive exchange-traded fund (ETF) reform roadmap, based on the recommendations of the working committee on ETFs, according to a statement issued on Tuesday.

The roadmap will be implemented in phases following extensive consultations with key stakeholders, including the Pakistan Stock Exchange (PSX), the National Clearing Company of Pakistan Limited (NCCPL), the Central Depository Company (CDC), the Mutual Funds Association of Pakistan (MUFAP), securities brokers and asset management companies (AMCs).

To broaden investor access, AMCs will be permitted to directly offer ETFs as part of their product suite, expanding access beyond the existing exchange-based mechanism where investors primarily rely on securities brokers. Under the new framework, AMCs will also facilitate investors in opening brokerage accounts directly, enabling them to invest in ETFs through AMC platforms without placing orders via brokers. This initiative is expected to strengthen investor confidence and improve market liquidity.

To rationalise the cost structure, the framework introduces a revenue-sharing mechanism under which AMCs may share a portion of their ETF management fee with securities brokers for distribution services. This is intended to align incentives among stakeholders, expand ETF distribution and attract a broader investor base.

Currently, ETFs are launched and managed by AMCs; however, the committee has recommended allowing securities brokers to undertake these functions to reduce multi-layered management structures. An enabling framework is being introduced for greater participation of securities brokers in the ETF ecosystem, including the potential to launch and manage ETFs, thereby enhancing market depth and product diversity.

To support long-term investors, it is also proposed to include passive investment options such as index tracker funds and ETFs within the voluntary pension system (VPS).