Taiwan opens active ETF, multi-asset ETF trading

Taipei, Aug. 3 (CNA) The Financial Supervisory Commission (FSC), the top financial regulator in Taiwan, has lifted a ban on trading of active exchange-traded funds (ETFs) and multi-asset ETFs as part of the country's efforts to transform itself into a wealth management hub in Asia.

An ETF, a pooled investment security, which is traded like an individual stock, is able to track from the price of a single stock to a large and diverse collection of securities.

More than two decades after Taiwan launched its first ETF, the FSC announced earlier this week that it will expand the scope of ETF products from passive ETFs to active ETFs and allow trading of multi-asset ETFs.

Active ETFs are traded through an investment portfolio built by managers to outperform a benchmark, while passive ETFs strictly follow the performance of an underlying index or an underlying stock.

According to the FSC, multi-asset ETFs are a way to allow passive ETFs tracking of a stock index to have a combined portfolio of equities and bonds in a certain ratio.

The FSC said it will keep a close eye on how the market will react to the broader scope of ETF trading before deciding whether to allow more assets to be included into multi-asset ETFs step by step.

Speaking with reporters, Chen Yen-liang (陳彥良), vice chairman of the FSC, likened an active ETF to a restaurant where the chef will choose different ingredients and cook dishes to cater to diners.

Chen said passive ETFs, however, are like a bento box which has a set meal for everybody.

With the presence of active ETFs, Chen said, investors will have an insightful fund manager to arrange an investment portfolio as a talented chef would design the menu for diners.

Chen said the FSC moved to lift the ban on trading of active ETFs and multi-asset ETFs by taking into account the experiences of foreign markets which have shown solid demand for the two forms of ETFs.

To build Taiwan into a wealth management hub in Asia, Chen said, the FSC should introduce good quality financial products, adding that active ETFs and multi-asset ETFs are expected to open a door for financial innovations in the country.

In an initial phase of the openness, Chen said the FSC will request managers of the two forms of ETFs to publicize their investment portfolios before the market opens every session to improve investment transparency.

"Transparency is the best preservative (to the market)," Chen said.

Echoing Chen, Kao Ching-ping (高晶萍), deputy director of the FSC's Securities and Futures Bureau, said the openness of active ETFs and multi-asset ETFs in Taiwan modeled on rules applied in the United Kingdom, the United States, Japan, South Korea, Hong Kong and Australia.

Kao said the two new forms of ETFs are allowed in Taiwan as the FSC took into account needs from clients and issuing institutions, fund flows and the diversification of financial products.

The FSC said a move to revise the rules allow trading of new forms of ETFs is scheduled to be completed by the end of this year, and the first active ETF and multi-asset ETF are expected to be listed on the local market in 2025.

An estimate made by the Taiwan Stock Exchange (TWSE) showed the market value of active ETFs in Taiwan is expected to hit NT$200 billion (US$6.10 billion) in 2026.

According to the FSC, Taiwan had 238 ETFs launched as of the end of June with the market value at NT$5.29 trillion, the third largest in Asia, while ETFs had accounted for 62.95 percent of investment trust firms' total mutual funds' value, which demonstrated the great market potential.

A survey conducted by the TWSE found 15 investment trust firms, including two foreign ones, which had issued passive ETFs showed interest in selling active ETFs, while some foreign investment trust firms, which had never issued ETFs in Taiwan, said they have been encouraged by the openness to consider issuing ETFs here.

In response, Capital Investment Trust Corp. Chairman Lai Cheng-sheng (賴政昇) said his company looked forward to the issuance of active ETFs and is preparing to launch new products next year.

Jeff Chang (張錫), chairman of Cathay Securities Investment Trust Co., said his company already has an active ETF team in place and will do its best to meet demand for new products in the market.