Comparable to the mutual fund ‘Fund Fact’ document, ‘ETF Facts’ would be delivered to investors in plain language and be no more than two pages double-sided.ismagilov/Getty Images/iStockphoto
In an effort to provide greater consistency between mutual funds and exchange-traded funds, Canadian regulators are proposing documents delivered to ETF investors provide more "easy-to-understand" information.
In a proposed amendment that has been published for industry comment, the Canadian Securities Administrators (CSA) is suggesting that ETFs produce and file a summary disclosure document called "ETF Facts," similar to what the mutual-fund industry introduced in 2011.
Comparable to the mutual fund "Fund Fact" document, ETF Facts would be delivered to investors in plain language and be no more than two pages double-sided.
The document would highlight key information that has been identified by the CSA as important to investors such as risks, past performance and the costs of investing in an ETF.
Although ETFs are substantially similar to conventional mutual funds, they are different in one significant aspect, the CSA says.
Individual investors cannot subscribe for ETF securities directly from the fund. Instead, ETF securities are bought and sold over an exchange like stocks.
As a result of that difference, the CSA has proposed additional content be included in the "ETF Facts" that speaks to trading and pricing characteristics of ETFs.
For example, the inclusion of information related to market price, bid-ask spread, as well as premium/discount of market price-to-net asset value.
During a testing phase, the CSA found that investors generally considered the ETF Facts to be a useful document and were committed to using it as a major component of their decision-making process for ETF investing.
"The introduction of an ETF Facts and its delivery regime will help to provide investors with easy-to-understand information about the potential benefits, risks and costs of investing in an ETF," Louis Morisset, CSA chair and president and chief executive of Quebec's Autorité des marchés financiers, says in a release.
Since July, 2011, every mutual fund has been required to prepare a fund-facts document for every class and series sold. Since June, 2014, every investment dealer has been required to deliver the fund-facts document instead of an investment prospectus when an investor purchases a mutual fund.
On May 30, 2016, investment dealers will be required to deliver the Fund Facts at or before the point of sale. For ETFs, the CSA is proposing an ETF provider would have to produce and file an ETF Facts document and make it available on the ETF's or the ETF manager's website.
"This has been a long project that we have been working, as an ETF industry as a whole, with the regulators and we are prepared for the changes this document would bring to the industry if the proposal goes through," says Steve Hawkins, co-CEO of Horizons ETFs Management (Canada) Inc. Additionally, an investment firm that receives an order to purchase an ETF would be required to deliver an ETF Fact document to investors within two days of the purchase.
"Delivery of the ETF Facts to investors will also help improve the consistency with which disclosure is provided to investors of ETFs, and help create a more consistent disclosure framework between conventional mutual funds and ETFs," the CSA says in the written proposal.
An investment prospectus will continue to be available to ETF investors at no cost.
Clare O’Hara