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[TOP STORY] JSE working to add active ETFs to its suite of products

‘A lot of [market] participants have been waiting for us to move on this,’ says Valdene Reddy, JSE.

SIMON BROWN: I am going to be chatting with Valdene Reddy, director at Capital Markets at the JSE in a moment. They are looking at exchange-traded funds. I was not aware of this: exchange-traded funds (ETFs) as per the listing requirements are passive products only. The JSE is looking to introduce active [ETFs] there as well.

Valdene, good morning, I appreciate the early morning time. I have to say, I wasn’t aware that ETFs needed to be only passive. The point is you’re changing this so that you can have active exchange-traded funds as well. Is this just a listing requirement within the exchange, or does the FSCA [Financial Sector Conduct Authority] also need to be involved in this?

VALDENE REDDY: Hi, good morning. Yes, we are adding in actively managed ETFs, you are right. This is well established internationally. It is one that we do require FSCA approval for, which we’ve done in terms of the initial steps of the consult to get the product fit for market. [We] have taken it to FSCA. But this is part of the process where we now have to do the public comment to officially add it into our suite.

SIMON BROWN: As I was saying in my intro, I wasn’t aware that ETFs locally were passive only. Globally certainly active ETFs have been gaining popularity. The most popular [is] ARK Innovation ETF from Cathie Wood. But [from] digging around the markets yesterday, [I see] there are actually a lot in New York, Europe, UK, where these are active.

VALDENE REDDY: Absolutely. There’s more than 1 000 actively managed products across the globe at the moment. In fact, there’s more than $300 billion in assets under management behind these products. So it just shows you the evolution of how, as the investor profile changes, as people want more access to product, they’re also looking to increase their profile [as to] where they have some flex in terms of where a fund manager can actually use actively-managed strategies to produce a return for the investors.

SIMON BROWN: In some sense I suppose it competes with the active unit trusts, although there are of course passive unit trusts. But really this is more about options [for] the fund manager who could perhaps have products on both the unit trust and the ETF platform, and of course for the investor who can then say, ‘Well, personally I’ve got a JSE broker account; it’s just that much easier for me to then go and buy an active ETF, rather than go to an OTC (over the counter) provider’.

VALDENE REDDY: Absolutely. There’s lots of benefits obviously from it being listed. Among the requirements – if you have seen the listings requirements that we’ve put out – are things like having market makers, because that then gives you the ability to have some price formation on the exchange. So absolutely, it just gives investors more choice.

SIMON BROWN: We’ve got locally-listed offshore passive ETFs, the S&P 500 – and dozens of them in truth. Would the same be allowed with the actives? This could be rand-denominated, but investing perhaps into New York or Europe?

VALDENE REDDY: It’ll be similar in terms of there won’t be any restrictions as to what the underlyings are, as we have within the confines of our current framework. Obviously there’s still a process for approval, because we look at factors like hedging, who can make the market, and so forth. But yes, it should follow the same nature of the current ETF suite of the universe.

SIMON BROWN: Any idea of timelines when we might see our first – obviously that depends on the issuer – but when the JSE will be ready to list active ETFs?

VALDENE REDDY: Simon, from a process perspective, once we are through this consult, which is open for a month till May 2, it’s just following the tick boxes, which thereafter should be very soon if we don’t get any fundamental differences. In terms of an actual issuance, the reason we brought in this product is [because of] high demand from the market. We’ve worked with some of the market participants, so we are hoping that an issuance will follow soon after, because a lot of participants have been waiting for us to move on this.

SIMON BROWN: Okay. So in the next couple of months we could have some active ETFs. I think it’s going to be absolutely great, a huge addition to the exchange.

We’ll leave that there. Valdene Reddy is a director at Capital Markets at the JSE. We might be getting some – almost certainly will be getting, I suspect – active ETFs rather than [just] the passives we have right now. They will of course be allowed tax-free, I suspect.



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