ASIC Removes the Local Authorised Participant Requirement in ETF Class Order
Fazzaco learned that Australian Securities and Investments Commissions (ASIC) has updated its class order on exchange traded funds (ETF) to allow ETF issuers to use overseas market makers.
According to the press release, ASIC has made ASIC Corporations (Amendment) Instrument 2021/299 (Amending Instrument) to amend Class Order 13/721 [CO 13/721] (Class Order). The Amending Instrument removes the requirement in the Class Order that an authorised participant must be an Australian resident for tax purposes.
The Amending Instrument removes a regulatory barrier to entry for offshore market-making entities seeking to participate in the Australian ETF market and, as a result, may encourage new entrants to the ETF market making sector.
ASIC recognises that authorised participants perform an essential market making function in the market for ETFs, and that competition between market makers facilitates market efficiency and can produce benefits for retail investors.
ASIC made the Amending Instrument after reviewing the local authorised participant requirement and consulting interested stakeholders. ASIC found that the local authorised participant requirement does not support competition or market efficiency in the ETF market making sector. ASIC found that the requirement may lead to suboptimal outcomes for retail investors trading on the secondary market, particularly due to wider buy-sell spreads than could be expected in a more competitive market.
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