SECP gives in-principle approval to phased ETF reform roadmap

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has given in-principle approval to a broad reform roadmap for exchange-traded funds (ETFs), according to a statement issued on Tuesday.

The regulator said the plan is based on recommendations prepared by the working committee on ETFs and will be rolled out in phases. The roadmap was developed after extensive consultations with major 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).

Under the new framework, AMCs will be allowed to offer ETFs directly as part of their product range. The move is aimed at widening investor access beyond the current exchange-based model, under which investors mainly depend on securities brokers to invest in ETFs.

The SECP statement said AMCs will also help investors open brokerage accounts directly. This will allow investors to make ETF investments through AMC platforms without having to place orders through brokers. According to the regulator, the measure is expected to improve investor confidence and support better market liquidity.

Changes to distribution and fee structure

To address the existing cost structure, the framework introduces a revenue-sharing arrangement. Under this mechanism, AMCs may share part of their ETF management fee with securities brokers in return for distribution services.

The SECP said this step is intended to align incentives among market participants, broaden ETF distribution and bring in a wider pool of investors.

At present, ETFs are launched and managed by AMCs. However, the working committee has recommended that securities brokers also be allowed to perform these functions in order to reduce what it described as multi-layered management structures.

In line with that recommendation, an enabling framework is being introduced to increase the role of securities brokers in the ETF market. The statement said this could include allowing brokers to launch and manage ETFs, a step the regulator believes would add to market depth and increase product diversity.

Proposal for pension system inclusion

The reform roadmap also includes a proposal aimed at long-term investors. According to the SECP, passive investment products such as index tracker funds and ETFs are proposed to be included in the voluntary pension system (VPS).

The regulator said the overall reform package is designed to expand access, improve distribution channels and support the development of the ETF ecosystem through a phased implementation process.