ASIC has requested that exchange market operators do not admit any managed funds that do not disclose their portfolio holdings daily and have internal market makers while it undertakes a review during the remainder of this calendar year.

Internal market making occurs when a managed fund’s responsible entity acts as the market maker for its own fund on the fund’s behalf, either by submitting bids and offers itself or by engaging a transaction agent that executes its instructions. Funds using this model generally do not disclose their portfolio holdings daily. They are usually actively managed funds. Internal market making funds represent approximately 6% of exchange traded products by funds under management.

The market for exchange traded managed funds has changed materially as follows:

• substantial recent market growth in actively managed funds
• continued innovation in fund structures and investment strategies among actively managed fund proposals, particularly those with internal market making
• changes to the composition of market makers for exchange traded managed funds and the nature of the pricing models they use
• recent international developments, including regulatory approval in the United States and Hong Kong of alternative frameworks.

On that basis, ASIC intends to review the regulatory settings for exchange traded managed funds that use internal market makers. The findings from the review will inform our next steps.

The pause on new admissions of these products by market operators (including funds whose admission applications are currently being considered) will remain in place until further notice. This will allow ASIC to consider the appropriate regulatory settings and will involve further consultation with the relevant sections of the industry during the second half of this year.

Existing actively managed exchange traded managed funds are not impacted. There is also no impact on other investment products that do not use internal market makers or on warrant products.