ASIC implements pause on admission of managed funds with internal market makers

Authors: Jon Ireland, Matthew Farnsworth, Georgia Wolff

Publication | July 30, 2019

ASIC published a media release today, 30 July, in which it indicated it has requested that exchange market operators do not admit any managed funds that do not disclose their portfolio holdings daily, and which have internal market makers. Existing actively managed exchange traded funds, as well as other investment products that do not use internal market makers, are not impacted by this announcement. The purpose of the pause on new admissions is to enable ASIC to undertake a review for the remainder of the calendar year of the regulatory framework applicable to exchange traded managed funds that use internal market makers.

Funds adopting the internal market making model are usually actively managed funds and are estimated to represent approximately 6% of exchange traded products by funds under management. The review follows ASIC having identified the following material changes in the market for exchange traded managed funds:

significant growth in actively managed funds;
continued innovation in fund structures and investment strategies among actively managed fund proposals, particularly those with internal market making;
changes to the composition of market makers for exchange traded managed funds and their pricing models;
international developments including changes to the regulatory approval processes in the United States and Hong Kong of alternative frameworks.

ASIC has indicated that the pause on new admissions of these kinds of funds (including funds’ admission applications that are currently being considered) is effective until further notice. As part of its review, ASIC has indicated that there will be an opportunity later this year for industry to participate in a consultation. The findings from the review and consultation process will inform ASIC’s next steps in respect of the applicable regulatory framework. Please contact us if you have any questions about the potential future direction of these regulatory settings.