In its biggest ETF listing rule change in over five years, the ASX is widening the universe of fixed income strategies it will accept for ETF listings.
The AQUA rule changes, which are expected to come into effect on September 22, will allow fixed income managers with holdings in fixed income securities that sit outside an index to be considered for listing on the ASX as an ETF.
As an example, fixed income funds with holdings in asset-backed securities and mortgage-backed securities will now be able to seek an ETF listing on the ASX.
"The asset needs to have a reliable pricing framework, and that's defined by being priced by the likes of Bloomberg, Reuters or others [and] then they can be put into a product. They need to make sure they can satisfy [daily] redemption requests and be open-ended," ASX senior manager investment products Andrew Weaver said.
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"This will benefit active managers because typically the rules -- as they were -- were typically thinking about asset managers that were looking to replicate an index."
The exchange will also consider ETF applications from private debt funds, which in recent years have shifted towards open-ended structures from closed-ended ones.
"It will be subject to our assessment whether we think the fund will be open ended and be able to [service] redemption requests," Weaver said.
ASX general manager investment products Andrew Campion said while the opportunity for the exchange from the rule change is hard to quantify, it expects it to be significant.
"We don't have a firm number in terms of the addressable universe...But we've probably missed out on five or 10 [ETFs] in the last two to three years, some from boutique managers and some from the world's biggest fixed income managers," Campion said
"Fixed income is one of the fastest-growing parts of the ETP market in Australia, so we are hopeful there is a multi-billion-dollar market out there."
The first Australian ETF listed on the ASX 20 years ago. At the time, the exchange used existing listing rules for stocks for ETFs. In 2008, it set up a rule book specifically for ETFs, managed funds and structured products called the AQUA.
AQUA rules started out with equities ETFs. Over time, they have been revised to include frameworks for fixed income ETFs (in 2012) and then active ETFs.
In recent years, competitor exchange Chi-X has attracted many fixed income ETFs. ASX's rule changes allow it to compete with Chi-X on a more equal footing in attracting fixed income active managers.
"I think people should be in favour of [the new rule]. The last thing you want is to have varying degrees of oversight and [then] you can get to a bit of a race to the bottom in terms of the rules. I think most fund managers should be pleased with the rule change," Campion said.
"We don't want to be competing over rule books. We can compete on other things. The two things we would point out to a prospective manager looking to bring a product to market is our market connectivity [with brokers and intermediary channels] and brand," he said.
Chi-X was not available for comment.