CPF structure could accommodate new exchange traded fund

Oct 20, 2000

State Street Global Advisors have beaten rivals to launch the first exchange traded fund in Singapore.

Singapore Exchange Ltd and State Street Global Advisors are launching an exchange traded fund (ETF) early next year which pensions investors may be able to include in their portfolios. Members of Singapore's Central Provident Scheme (CPF) currently can only invest a portion of their pensions money in domestic shares and unit trusts that are officially sanctioned.

According to Hon Cheung, State Street's managing director in Singapore, a new category may have to be created under Singapore's pensions scheme structure for members to buy into the new product. A joint statement by Singapore Exchange (SGX) and State Street says they intend to sign a memorandum of understanding to have the ETF listed and traded on the country's benchmark index by the first half of 2001.

"Assuming it happens, it would make sense to try to use the current regulatory infrastructure to accommodate the new product," says State Street's Cheung. But he expects only minimal changes need to be made to the CPF investment framework for the fund to be included.

"The differences between ETFs and unit trusts are not so big and dramatic that you need a whole new regulatory structure to accommodate [ETFs]. These things can be pretty much pigeon-holed easily into the current regulatory framework."

Follow-on

Singapore is keen to have its own ETF following the success of Hong Kong's Tracker Fund, which is also managed by State Street. Thomas Kloet, SGX's chief, says the launch fits in with the exchange's objectives of introducing "innovative and exciting products into the marketplace". He hopes the new product will serve as a catalyst for the development and listing of other local and regional ETFs at SGX.

State Street has so far been the frontrunner in signing up mandates for managing ETFs with major exchanges in the region, beating rivals such as Barclays and Bank of New York. Apart from Hong Kong and Singapore, State Street recently signed up with the Australian Stock Exchange to launch an ETF next year.

Cheung declines to speculate on how many investors the new fund will attract in Singapore, but he doubts it will make as much noise as Tracker Fund did when it was lauched, citing the heavy involvement of the Hong Kong government in promoting the fund as the reason.