SECP specifies regulatory framework for Debt and Hybrid ETFs

June 24, 2021: In line with its objectives of creating a competitive and conducive playing field and diversifying the range of Exchange Traded Funds (ETFs) available to investors, the Securities and Exchange Commission of Pakistan (SECP) has specified the framework for the issuance of Debt and Hybrid ETFs through Circular No 20 of 2021.

The circular also updates the existing framework for Equity ETFs.

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. 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 / authorized participants.

Internationally, ETFs are among one of the fastest-growing investment products which are being customized 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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