CSE to trade ETFs in Q1 2011

by Surekha GALAGODA

Exchange Traded Funds (ETFs) will be traded in the Colombo Stock Exchange (CSE) from the first quarter of 2011.

The Securities and Exchange Commission of Sri Lanka (SEC) is finalising the regulatory framework that will enable (ETFs) to be traded on the CSE, said the Director General SEC Malik Cader.

ETFs differ from close ended listed unit funds because ETFs can create new units and redeem the existing units. The SEC sought technical assistance from the Securities and Exchange Board of India (SEBI) who provided two experts to help formulate the regulations.

A unique feature in the regulations is that in addition to listed equity and debt ETFs are a hybrid product which has the features of units and shares. The regulations will also enable assets such as gold and silver to be kept as an underline and units will be issued which could be traded as gold ETFs.

As explained by one of the experts Amith Tandom, a unit trust management company can acquire one kilo of gold, keep it in custody and issue 1000 units. Each unit will represent one gram of gold.

When you buy one unit from the CSE it will represent one gram of gold. When the world market prices of gold increase it will be reflected in the price of units. He said that in India gold ETFs are very popular. Most people collect gold to be given as dowry to their daughters. In the event a person buys gold jewellery and keeps it, the second hand market for jewellery is much less as wastage and craftmanship costs are deducted. Safekeeping is also an issue. Therefore investing in gold ETFs is a good option as an investor can also earn a return.