Canadian securities regulators are now looking to bring the plain-language disclosure they introduced to mutual funds several years ago to exchange-traded funds (ETFs).
The Canadian Securities Administrators (CSA) published for comment its proposed requirements for a new simplified disclosure document for ETFs on Thursday. Known as ETF Facts, the initiative is similar to the plain-language Fund Facts document that must currently be provided to clients who purchase mutual funds.
“Consistent with the principles of the project, we think the proposed amendments will provide investors with the opportunity to make more informed investment decisions, by giving investors access to key information about an ETF, in language they can easily understand,” writes the CSA in its notice. “Furthermore, investors in conventional mutual funds and ETFs will be treated more equally with respect to the disclosure available in connection with the purchase of securities.”
The proposed ETF Facts is supposed to be no more than two pages double-sided and highlights key information that the CSA has identified as important to investors.
The anticipated benefits include: less risk of investors buying inappropriate products; greater transparency of charges and commissions; and a better ability for investors to compare one ETF to another.
Under the proposed amendments, an ETF would have to produce and file an ETF Facts document and make it available on the ETF’s or ETF sponsor’s website.
In addition, dealers that receive an order to purchase ETF securities would be required to deliver an ETF Facts to investors within two days of the purchase. A full prospectus will continue to available to investors at no cost.
Although most dealers are currently delivering a summary disclosure document for ETFs, the proposed amendments would codify the form and content as well as extend the delivery obligation to all dealers selling ETFs.
The CSA is continuing to develop a standardized risk classification methodology for use in both Fund Facts and ETF Facts. Once implemented, it’s anticipated that this risk rating will always be determined according to CSA methodology.
Although ETFs are substantially similar to conventional mutual funds, they are different in that rather than subscribing for units directly from the fund management firm, investors must purchase ETFs through the facilities of a securities exchange, the CSA notice says. Therefore the CSA has included additional content in the ETF Facts that speaks to the trading and pricing characteristics of ETFs.
For example, the CSA has proposed that the document include information related to the market price and bid-ask spread of the ETF as well as the premium/discount of this price to net asset value and other information that explains some of the pricing issues to consider when trading ETFs.
The method for delivery of the ETF Facts is expected to be consistent with the method for delivery of a prospectus under securities legislation and could be in person, by mail, by fax, electronically or by other means. Access will not equal delivery — nor will a referral to the website on which the ETF Facts is posted.
If the investor is not provided with the ETF Facts document within two days of the purchase, the investor has the right to seek damages or rescind the purchase.