The Director of Banking Supervision at the Bank of Botswana, Oabile Mabusa, has given the Exchange Traded Fund (ETF) cautious thumbs up. Speaking at the just ended inaugural ETFs conference that was organized by the Botswana Stock Exchange (BSE), Mabusa said the ball is in BSE court to come up with a harmonized regulatory framework in respect of the existing Collective Investment Undertakings Act.
In other jurisdictions, ETFs are registered as Collective Investment Undertakings (CIU) or Collective Investment Schemes (CIS) in the case of South Africa and are regulated under the controlling Act. In terms of the current regulatory framework, Mabusa said the ETFs have not explicitly been provided for under the CIU Act but the Central Bank is amenable to amendments.
“As long as the law is not broken, the regulator (Bank of Botswana) would be willing to accommodate such innovative structures as that of the ETFs,” he told the delegates.
The Act had only provided for the mutual funds, unit trusts and is specific with respect to investment companies.
“The CIU Act provides for mutual funds and ETFs are virtually mutual funds. It is a matter of maneuvering the ETF regulations in order to fit them into mutual funds legislative provisions,” he advised.
Mabusa explained that the role of the regulator is not to stifle development of new products in the financial markets but to balance conflicting interests between innovators and investors. In view of the fact that innovators flood the market with new products with the underlying motive of maximizing returns and minimizing risk exposures accruing to them while on the other hand investors put money into such ventures in order to maximize returns, Mabusa said the hand of regulator is inevitable for purposes of balancing such interests. In the case of CIUs ÔÇô with particular reference to the ETFs, he explained that the role of the regulator would be limited to approval of appropriate regulatory framework with the understanding that the market would regulate itself. The BSE would, in this case, regulate the operations of the ETFs listing.
However, Mabusa said the two parties (BSE and BoB) would first have to synergise the protective legislative provisions of pricing and valuation of a unit stock.
“We also have to know what guarantees are there for investors in case the underlying stock are de-listed or in the case of suspension,” he said.
BSE, on the other hand, has said it has already drafted the necessary legislative requirements and is looking at finalizing them by the end of July this year. It also looks like the domestic is well on course to list the ETFs into the domestic market.
Government has announced the sponsorship of Central Securities Depository system, which is expected to commence by mid May and the automation going live by mid next year.
The BSE was hailed by the Cape Town based Quantitative Analyst of Clade Investment Management, Uchi Gappah.
“You can actually see that the BSE is serious about this. Look, they are even talking about listing the first ETF in the market even when they are still trading manually ÔÇô it shows that they are planning ahead. Even ETFs are new products in Africa and the world over, they don’t want to be left behind,” he said.
The BSE intends to ease problems of market liquidity, diversity and depth of the bourse through the listing of ETFs.