New rules on ETFs you need to know
According to a recent circular by the South African Reserve Bank, exchange traded instruments listed on the JSE that reference foreign assets but are traded in rands will be reclassified as domestic investments.
On the face of it this means JSE-listed exchange traded funds (ETFs) that track foreign indices, such as the S&P500 or the MSCI World Index, will no longer be regarded for exchange control purposes as foreign investments but as local ones.
Magda Wierzycka, chief executive of Sygnia, said in a podcast on BizNews that this has huge implications for retirement funds, which, under Regulation 28 of the Pension Funds Act, are required to invest a minimum of 60% of their portfolios in local assets (with up to 30% offshore and a further 10% in Africa outside South Africa). She said that if the reclassification did apply to ETFs tracking foreign indices, which Sygnia was assured by Reserve Bank, the JSE and legal opinion that it did, retrirement funds could, theoretically invest 100% of their assets "offshore" via these ETFs.
However, it remains to be seen whether the Financial Sector Conduct Authority (FSCA) will sanction the move. According to a statement by Sygnia on BizNews, the FSCA "is engaging with the Reserve Bank and may issue a statement".