MALAYSIA: Securities Commission Malaysia Revises ETF Guidelines

The Securities Commission Malaysia (SC) has recently revised its Guidelines on Exchange Traded Funds (ETFs), allowing for the issuances of a more diversified range of ETFs in the market. These include: futures-based ETFs, synthetic-ETFs, physical commodity ETFs and smart beta ETFs. The introduction of an array of ETFs aims to promote competitive growth and facilitate product innovation in the market, providing new investment opportunities and exposure for investors with varying risk appetites.

These enhancements are in tandem with global trends, with the Asian ETF market expected to see an annual growth rate in assets of 18 percent by 2021. As of October 2018, Malaysia has ten listed ETFs with a combined market capitalisation of approximately RM 2.03 billion.

Futures-based ETFs, such as Leveraged and Inverse (L&I) ETFs, will pave the way for a more cost-effective and transparent channel for investors to access the traditionally sophisticated futures market. Leveraged ETFs use futures contracts to provide a multiple of the underlying index’s daily return (positive or negative) while Inverse ETFs allow investors to gain from downward market.

Due to the complexity of the L&I ETFs, prospective retail investors must meet certain pre-qualification criteria before they can invest in these products. First time retail investors must undergo an e-learning module developed by Bursa Malaysia as well as a performance simulator provided by management companies of L&I ETFs before they can invest in L&I ETFs.

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