CSA taking a harder look at ETF regulation

National regulatory body to assess whether current regulations and IOSCO guidelines are application to current Canadian reality

CSA taking a harder look at ETF regulation

The Canadian Securities Administrators (CSA) has announced that it is conducting a regulatory review of exchange-traded funds.

In a statement, the regulator said it will evaluate current regulations around ETFs to determine whether they remain appropriate.

The review will focus on ETFs’ unique features including secondary market trading, creation and redemption of ETF units by authorized dealers, and the arbitrage mechanism that helps keep an ETF’s market price close to its underlying portfolio’s value.

“Canada is a pioneer in ETFs, launching the first ETF in the world over three decades ago,” said Stan Magidson, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “ETFs are an increasingly important investment vehicle for Canadian investors, and the CSA’s review of ETFs will provide us with important insight into the functioning of the ETF market.”

The CSA took note of ETFs’ increasing popularity, as they make up around 15% of total public investment fund assets across Canada today.

It said it will analyze the ETF market by assessing secondary market activity, as well as factors that may impact their liquidity and trading.

It will also consider whether the Good Practices Relating to the Implementation of the IOSCO Principles for Exchange Traded Funds, which the International Organization of Securities Commissions published in May 2023, are appropriate for Canada’s ETF space.

“The review will help the CSA determine whether any additional requirements are needed as the industry continues to grow and innovate,” Magidson said. “A regulatory framework that is appropriately tailored to the unique ETF structure will foster competition and facilitate more investment choices for investors.”