On 12 May 2023, the International Organization of Securities Commissions (IOSCO) published Good Practices Relating to the Implementation of the IOSCO Principles for Exchange Traded Funds.

Exchange traded funds (ETFs) are an increasingly popular investment vehicle, which offer investors exposure to underlying markets for stocks, bonds and other assets; portfolio diversification; and access to a wide range of investment strategies. ETFs are a unique type of collective investment scheme (CIS).They have characteristics of both traditional open-end CIS, which issue redeemable securities, and closed-end CIS, which generally issue securities that are traded on a securities exchange and are not redeemable. This combination of characteristics also distinguishes ETFs from unlisted open ended funds and closed-end CIS models.

In 2013 IOSCO published the Principles for the Regulation of Exchange Traded Funds. In the context of ETFs, these principles cover a wide range of topics, including disclosure, portfolio transparency, costs, risks, strategies, structuring issues on counterparties and conflicts of interest. The good practices now published support the principles by highlighting issues for consideration by regulators, responsible entities and/or trading venues as to how the principles and other relevant IOSCO standards and guidance can be put into practice.

The good practices can be broadly categorised under four themes that encompass the full life cycle of ETF products:

  • Product structuring (including range of assets, strategies for ETF offerings, effective arbitrage mechanisms).
  • Disclosure requirements (including on fees and on clear differentiation of ETFs from other Exchange Traded Products and CIS).
  • Liquidity provisions (including market monitoring and ensuring orderly trading).
  • Volatility control mechanisms (including communication between trading venues).