Exchange traded funds (ETF) issuers can now use overseas market makers, as the Australian Securities and Investments Commission (ASIC) has updated its class order.
ASIC made ASIC Corporations (Amendment) Instrument 2021/299 (Amending Instrument) to amend Class Order 13/721 [CO 13/721] (Class Order), which removed the requirement in the class order that an authorised participant must be an Australian resident for tax purposes.
The amending instrument removed a regulatory barrier to entry for offshore market-making entities seeking to participate in the Australian ETF market which the corporate regulator said could encourage new entrants to the ETF market-making sector.
ASIC made the amending instrument after it reviewed the local authorised participant requirement and consulting interested stakeholders.
It found the local authorised participant requirement did not support competition or market efficiency in the ETF market making sector and the requirement may lead to suboptimal outcomes for retail investors trading on the secondary market, particularly due to wider buy-sell spreads than could be expected in a more competitive market.
ASIC consulted with a number of ETF issuers and market makers, as well as the Australian Tax Office, as part of the review.