The Irish Stock Exchange (ISE) has announced that it has got rid of the need for the daily disclosure of portfolio details on actively managed exchange traded funds (ETFs), which experts say could raise transparency issues.
The removal of the need to publish these details, which came into effect on 18th November, will mean that the ISE is now in line with the requirements of other EU exchanges. The ISE is used as a primary listing venue for many ETF issuers, and the facility to publish the portfolio disclosures will remain available to all ISE listed ETF issuers.
However, the move has bought into question whether this raises the risk of the products becoming less transparent.
“This does raise the question as to transparency and that exchanges will need to be mindful that the regulators are likely to impose further transparency requirements than less over the coming months,” said Monica Gogna, partner at law firm Ropes & Gray.
Currently the London Stock Exchange requires the same levels of disclosure for both active ETFs and passive ETFs, which consists of the daily net asset value (NAV) and the outstanding number of shares.
Despite this, there is no requirement under European Union legislation, The Undertakings for Collective Investment in Transferable Securities, for an ETF to disclose its actual holdings in Europe (although there are other requirements). Active ETFs must disclose that they are actively managed.
Active ETFs can be listed on the London Stock Exchange and elsewhere by listing in Dublin. This is done via posting it daily and the fund is then passported onto the LSE subject to it being approved as UCITS and signed off by the FCA.
This is likely to open up the European market for active ETFs.
Peter Sleep, senior portfolio manager at investment manager 7IM, said: “This makes the potential for active European ETFs very good and there are already some in existence.”
Source Pimco, Source Ashmore and Source GLG are just a few such ETFs.
This is in stark contrast to the U.S. where the route to active ETFs is more or less blocked unless the holdings are disclosed. For active ETF managers this is a problem as they do not want to disclose their holdings.
Sleep, said: “This is OK for active bond ETF managers like Pimco, but kryptonite for active ETF managers like Blackrock who do not want to disclose their holdings.”
According to data from research house ETFGI, there are currently 188 active ETFs worth $27 billion in assets, globally.