Bahrain issues Exchange-Traded Funds’ (ETFs) regulations

The new directives will expand the categories of locally domiciled mutual funds to include ETFs as another type of Collective Investment Undertakings (CIU) that may establish in Bahrain and listed by banks and other financial institutions on licenced exchanges. It will also permit the registration of listed offshore ETFs as detailed in CBB Rulebook Volume 7.

Moreover, the new directives recognise both conventional and Shari'ah-compliant ETFs, to accommodate for a wider range of investors’ preferences.

ETFs are effectively funds that are traded like stocks on a stock exchange that mainly track index, a commodity, bonds or a basket of securities, and hence divide ownership of those assets into shares. ETF shares can be bought or sold throughout the day on an exchange at a market-determined price.

ETFs have a number of features that retail and institutional investors are attracted to. Typically they provide price transparency, higher liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. Moreover, by owning an ETF, investors get the diversification of an index fund as well as the ability to easily trade the shares on the licenced exchanges.

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