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SGX Proposes To Publish ETF Closing Prices

Written by Rebecca Hampson

  
July 24, 2013 12:37 (CET)
The Singapore Stock Exchange has launched a consultation proposing to publish the closing prices for exchange traded funds trading on its platform in a bid to promote a more vibrant ecosystem for ETFs.

 

In its place are plans to introduce a methodology that will determine closing prices for ETFs more closely reflecting the prevailing market conditions.  The practice, which is common place in Europe, is expected to give ETF investors an more accurate and up-to-date closing price.

“This sort of practice is normal in Europe and it is good practice for the exchanges to do this,” said Matt Holden, managing director, head of ETF trading Europe at KCG Europe Ltd. “Exchanges use this practice in situations where an ETF does not have regular on exchange trades or when ETFs do not have regular on-exchange closing trades. It helps ETF investors to mark to market adequately on their ETF positions. If the exchange does not use this or a similar practice, the mark to market price of the ETF position will remain at the “stale” close price from several days ago.”


For example, if the underlying components of the ETF were going up (and thus the NAV increasing over this time), the investor would still have a flat mark to market price (despite the on exchange intraday value of the ETF rising). This practice usually involves the exchange using an algorithm to calculate a closing price based off intraday market maker bids and offers, if there is indeed no on-exchange close price trade,” Holden added.


According to a note from SGX the proposed methodology, together with a wider product range, improved liquidity and a more diverse retail and institutional participation, will help promote a more vibrant ecosystem for ETFs.


The consultation, which was launched on SGX’s website on Friday 19 July, asks for the views of the public and market participants. Subject to regulatory approval it is looking to launch in the first three months of next year.

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