Industry Updates

Irish regulator to assess ETF portfolio transparency rules

Irish lawyers say the regulator could look at the rules later this year

Lauren Gibbons

Central Bank of Ireland

Irish lawyers have said the Central Bank of Ireland (CBI) plans to look into ETF portfolio transparency rules as early as this year.

The CBI does not currently authorise any ETF that does not disclose its portfolio holdings daily.

Changes surrounding ETF transparency rules to allow semi-transparent ETFs have been touted to accelerate the growth of active ETFs in Europe, particularly on more concentrated strategies and conversations have been sparked following the report of the International Organisation of Securities Commissions (IOSCO) paper last May.

Sergey Dolomanov, partner at William Fry, said: “I understand that the CBI does intend to look at [portfolio transparency rules].

“The industry will be hopeful that it results in a broader or flexible set of requirements, given that they are reviewing it in the context of the IOSCO paper.”

Echoing his views, Brian Higgins, partner at Dillon Eustace, said: “It is really in the context of the IOSCO paper that we think the [CBI] will be looking at the transparency rules later this year or early next year.”

According to the report, titled Good Practices Relating to the Implementation of the IOSCO Principles for Exchange Traded Funds, IOSCO noted more than one approach can achieve the aims of effective arbitrage and the price formation of ETFs.

Daily portfolio transparency has been tied to facilitating an efficient arbitrage mechanism, resulting in narrower premiums and discounts, tighter spreads and better liquidity, however, this can be achieved through multiple approaches.

Allowing strategies that do not require active managers to disclose their portfolio holdings daily has been tied to potentially accelerating the growth of active ETFs in Europe.

However, Ciara O'Leary, partner at Dechert, said asset managers coming into the ETF space are becoming less concerned with portfolio transparency requirements.

“What was previously viewed as a barrier to entry is certainly not the deal breaker it once was,” she said.

“As such, the relaxing of the rules may not be viewed by the market as such a dramatic event as it would have been a few years ago, but it is still to be welcomed as anything that further assists new entrants to the ETF space is encouraged.”

The latest example of an active ETF that has a more limited number of holdings includes ARK Invest Europe, launching three actively managed ETFs in April.

The launch supports the idea that active managers are not averse to disclosing their daily portfolio holdings, and do not see this as an inherent structural barrier.

However, Dolomanov noted having the option for both transparent and semi-transparent ETFs, is “in the interest of the Irish landscape”.

“Overall, there is a good case there to tweak the rulebook to essentially give that optionality to investors.”


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