HOW TO CREATE AN ETF What regulatory constructs are needed: CIS? SPV? What type of ETF do you want to create? Identify the target market and the product type Identify the reference index Identify all the stakeholders / role players / parties involved Application processes – parallel process between stock exchange (NSE) and capital markets authority(SEC): Initialise process with stock exchange: High Level proposal for ‘in-principle’ approval – product structure, stakeholders, etc. Formal approval from SEC, if applicable (CIS) Final approval for listing of participating units from NSE Listing process: IPO or seed capital? WHAT IS NEEDED TO SET THEM UP? CRITICAL SUCCESS FACTORS Involvement and buy-in of all role-players / stakeholders Regulators, Stock exchange, Asset owners, Investors, Financial services industry Regulations Listing requirements for the participatory units (ETF / ETN) Underlying investment vehicle (e.g. CIS regulations, SPV, etc.) Mandate compliance for targeted investors Underlying / reference asset Asset class: Equity vs. Bonds vs. Commodities? Foreign vs. Local? Style: “Vanilla” vs. “Smart”, themed?
WHAT IS NEEDED TO SET THEM UP? CONSIDERATIONS ON WHERE TO FOCUS YOUR EFFORTS Regulations & stakeholder buy-in (incl. financial support / commitment?) State of the market: Does the current support a “home-grown” or an “imported” model? Run the “chicken-and-egg” model in parallel i.e. use an imported imperfect solution as a quick fix to assist the market in familiarising themselves with the concepts, whilst developing your home-grown offering Sustainable plan of action: Define a medium term plan of what you want to achieve over the next five years Ensure that any intermediate steps are supportive of the ultimate goal, even if in contradiction in the short term Where is the best “bang-for-your-buck” Acknowledge your market’s strengths and weaknesses, optimise your opportunities and minimise the threats