With the aim of improving competition and market making efficiency in the Australian Exchange Traded Fund (AND F) in the market making industry, the Australian Securities and Investments Commission (ASIC) now allows ETF issuers to use foreign market makers.
Following consultations with ETF issuers and market makers, as well as the Australian Tax Office, ASIC has developed the ASIC Corporations (Amendment) Instrument 2021/299 to amend the ASIC Class Order [CO 13/721] (Class order), effectively removing the requirement that “authorized participants” under the Class Order must be Australian residents for tax purposes.
So what’s the problem ?
The change removes a key regulatory barrier to entry for offshore market makers seeking to participate in the Australian ETF market, with ASIC hoping to address the existing concentration of market makers currently operating in Australia. In addition to the valuable expertise that international participants are likely to bring to the Australian market, ASIC believes that opening up the Australian market to offshore ETF market makers will help improve market efficiency and, therefore, improve market efficiency. better results for retail investors. Increased competition between market makers should narrow the buying and selling spreads in order to achieve greater market share and lower transaction costs.
Foreign market makers will benefit from equal treatment relief under the Class Order which allows responsible entities that issue ETFs listed on the financial market operated by ASX Limited or Chi-X Australia Pty Ltd to restrict withdrawals of funds to authorized participants only, and to provide index or portfolio information to authorized participants before other members.
The provisions of the Class Order relating to relevant interest and substantial relief from holding and tracing of beneficiaries have also been amended to provide that authorized participants do not need to be Australian residents for tax purposes to take advantage of such relief and for the purpose of researching beneficiaries.
There is no notification or request process for foreign market makers to rely on the collective order.