As the Exchange-Traded Fund (ETF) market gains prominence in Kenya, issuers are mandated to provide a comprehensive overview of specific details related to their ETFs.
The Capital Markets Authority (CMA) has outlined a set of requirements to be included in the Information Memorandum, ensuring transparency and clarity in the ETF issuance process. Let’s delve into the key elements that must be addressed:
1. Type and Description of ETF:
- Disclose the type(s) of ETF(s) to be issued and provide a detailed description, including the name and establishment date of the ETF. Explain how the ETF will be compiled or constituted.
2. Computation and Targeted Unit Holder Category:
- Provide information on the computation behind the number of block or portfolio securities that make up ETF units and identify the targeted unit holder category.
3. Justification for ETF Issuance:
- Offer a robust justification for the establishment of the ETF, outlining reasons for asset selection, jurisdiction choice, benefits to investors, and the issuer’s objectives.
4. Constituent Assets and Combination Ratio:
- Describe the constituent assets and the ratio of their combination within the ETF.
5. Creation and Cancellation Process:
- Explain the process for creating and canceling ETF units, detailing anticipated institutional, human resource, and infrastructural arrangements.
6. Party Involvement and Competence:
- Identify and assess the competence of the parties involved in sponsoring or calculating the ETF.
7. Advisors to the Issue:
- Provide names and addresses of key advisors, including the fund manager, market maker, trustee, custodian or administrator, index provider, and external auditor.
8. Net Asset Value (NAV):
- Present the NAV of the fund as of the application date, particularly for cases where a mutual fund seeks conversion to an ETF or when an ETF seeks secondary listing.
9. Pricing, Dividend Distribution, and Tracking Approach:
- Outline the dividend distribution policy, past performance (if applicable), and issues affecting the ETF’s ability to replicate its target index.
10. Liquidity Ratio and Volatility:
- Include the liquidity ratio and turnover/market capitalization of underlying securities, as well as the volatility of the NAV over specified periods.
11. Course of Action for Suspended or Delisted Securities:
- Define the issuer’s response in situations where an underlying security is suspended or delisted, and elucidate the repercussions on NAV computation.
12. Expertise and Experience:
- Prove the issuer/promoter’s relevant expertise or access to expertise in issuing ETFs.
13. Commitments and Undertakings:
- Commit to establishing and maintaining a secondary market for the ETF, computing and disclosing the NAV daily, linking with CMA’s surveillance infrastructure, and transparently outlining fees charged by service providers.
Adhering to these requirements ensures that ETF issuers provide a comprehensive and transparent overview, fostering investor confidence and regulatory compliance in Kenya’s burgeoning ETF market.
