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Malaysia takes step to allow L&I ETFs

Bursa Malaysia has published a consultation paper to develop the country’s ETF market, which includes the introduction of leveraged and inverse ETFs, according to a statement from the local bourse.

The move comes more than one year after the country’s Securities Commission (SC) announced that it will facilitate the introduction of L&I ETFs to investors.

The consultation paper (PDF) outlines conditions for trading in L&I ETFs. Bursa Malaysia proposes that those investing in such products should only include sophisticated investors.

“There are risks associated with L&I ETFs, rendering them unsuitable for long-term investment. Hence, the qualifying criteria are aimed at confining the trading of L&I ETFs to sophisticated investors only, or investors who have relevant trading exposure,” the consultation said.

The consultation also proposes the introduction of other ETFs, such as futures-based ETFs, synthetic ETFs and physically-backed commodity ETFs.

The recommendations are aimed at attracting greater investor participation in ETFs, the bourse said.

Managers have been anticipating the further development of Malaysia’s ETF market. Kuala Lumpur-based Kenanga investors, for example, entered into a strategic partnership with Taipei-based Yuanta Securities Investment Trust in June to develop new types of ETFs, including L&I products, in Malaysia.

Malaysia’s ETF market remains small. There are only 10 ETFs listed on the local bourse, according to data from Bursa Malaysia. These products are managed by four firms: Affin Hwang Asset Management, AmFunds Management, CIMB Principal Asset Management and I-VCap.

Nevertheless, the market is growing. ETF assets in Malaysia increased 55% between the end of 2013 and the end of 2017, Kianhong Tan, Singapore-based senior analyst at research firm Cerulli Associates, said previously.

Part of the Mark Allen Group.