SEBI relieves direct transaction of ETFs up to Rs 25 crore with AMCs

In a circular titled ‘Development of Passive Funds’ issued in May 2022, the regulator said that the facility of direct transaction of units of ETFs with AMCs should be made available to investors for above orders only. 25 crores. This was expected to allow exchanges to direct transactions to this extent and increase liquidity in ETF units. It came into effect from 1 July 2022.

Explaining the challenges with respect to its implementation, SEBI deferred the applicability of this clause till November 01, 2022.

“In the earlier circular, the regulator used to appoint at least two market makers for each ETF to improve liquidity on the exchange, with the provision for direct transaction of ETFs with AMCs. It only started on 1st July and so far there has been no significant increase in liquidity on the exchanges. It takes time and cannot happen over time. Meanwhile, I think small institutional players, private trusts and HNIs (high net worth individuals) with incremental transaction amounts The shortfall of Rs 25 crore may make it difficult to transact on the exchange. Given this, extension of time by SEBI is now a welcome move,” according to an industry source, who did not wish to be quoted.

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