Exchange Traded Funds (ETFs) are considered by some financial gurus as an investment product of choice for the inexperienced trader all the way to the professional money managers. In emerging financial markets like that of Ghana, ETFs are yet to see the light of the day. The Ghana Stock Exchange (GSE) announced the introduction of ETFs in to the market sometime ago and finally, the Securities and Exchange Commission (SEC) has approved the Rules for the Exchange Traded Funds.
The general listing rules prescribing the requirements for obtaining and maintaining the listing of securities on the Ghana Stock Exchange does not apply to ETFs hence different rules were set for listing and trading. With reference to the Rules for ETFs released this month, trades in ETFs shall be settled through the Clearing and Settlement System of the GSE and Securities Depository System of GSE Securities Depository Ltd just like stocks on the GSE.
This same document revealed that an application for the issue of ETFs must include, Net Asset Value (NAV) of the ETF as at the date of application and the Percentage change of the NAV of the underlying basket of securities / index / underlying asset for the previous 6 months on a weekly basis, among others. The criteria for listing revealed that, the ETFs must be open-ended and fully secured at all times: either by the underlying securities/commodities or financial instruments it represents, a proxy security
acceptable to GSE which should be listed, freely tradable and have adequate liquidity or cash. Looking at the current affairs of the capital market, liquidity issues are very important to the GSE & SEC.
Further scrutiny of the rules showed that, ETF issuers must undertake to compute the Net Asset Value of the ETF on a daily basis and make the NAV public to all market participants at the same time through the GSE. Obviously, no insider trading would be encouraged. The condition for listing stipulated among a list of requirements that, GSE may, in its overriding discretion, grant a listing to an Issuer who does not fulfill the requirements set out or refuse a listing to an Issuer who does not comply with the listing requirements on the basis that, in the GSE’s opinion, the grant or refusal of the listing is in the interest of the investing public.
In terms of pricing the ETFs, the rules stated that, the issue price shall be on a basis approved by the Exchange and shall not include management charges and other fees. Moreover all management charges and other fees are required to be separately specified in the offer Document.
The rules for ETFs are very clear and easy to understand. For more analysis of the essence of these rules, join me on Twitter: peagama (click to follow) or facebook: Patrick .... and let's discuss.
For more details on the Rules for ETFs in Ghana, Click to download full document. (Courtesy: GSE, & SEC).