To support the development of the Exchange Traded Fund (ETF) market in Pakistan through improved liquidity, enhanced investor access, and broader market outreach, the Securities and Exchange Commission of Pakistan (SECP) has granted in-principle approval for the implementation of a comprehensive ETF reform roadmap, based on the recommendations of the Working Committee on ETFs.
The roadmap will be implemented in phases, in line with a defined timeline. It has been finalized following extensive consultations with key industry stakeholders, including the Pakistan Stock Exchange (PSX), National Clearing Company of Pakistan Limited (NCCPL), Central Depository Company (CDC), Mutual Funds Association of Pakistan (MUFAP), securities brokers, and asset management companies (AMCs). The proposed reforms aim to enhance accessibility, improve market efficiency, and reduce costs for investors.
To broaden investor access, AMCs will be permitted to directly offer ETFs as part of their product suite, expanding access beyond the existing exchange-based mechanism where investors primarily rely on securities brokers. Under the new framework, AMCs will also facilitate investors in opening brokerage accounts directly, enabling them to invest in ETFs through AMC platforms without placing orders via brokers. This initiative is expected to strengthen investor confidence in capital markets and contribute to improved market liquidity.
To rationalize the cost structure, the framework introduces a revenue-sharing mechanism under which AMCs may share a portion of their ETF management fee with securities brokers for distribution services. This approach is intended to align incentives among stakeholders, expand ETF distribution, and attract a broader investor base to the capital market.
Currently, ETFs are launched and managed by AMCs; however, the Committee has recommended allowing securities brokers to undertake these functions to reduce multi-layered management structures. An enabling framework is being introduced for greater participation of securities brokers in the ETF ecosystem, including the potential to launch and manage ETFs, thereby enhancing market depth and product diversity.
To support long-term investors, it is also proposed to include passive investment options such as Index Tracker Funds and ETFs within the Voluntary Pension System (VPS). This will provide investors with cost-efficient in terms of reduced management fee for gaining exposure to the capital market, as compared to traditional VPS equity fund structures.
In addition, several complementary initiatives will support these reforms, including digital onboarding through multiple platforms, investor awareness campaigns, and operational enhancements aimed at strengthening the ETF ecosystem. Necessary instructions are being issued to stakeholders to initiate regulatory developments, system upgrades, and operational changes in line with the implementation plan.
The SECP reiterated its commitment to strengthening Pakistan’s capital markets by promoting transparent, innovative, and cost-efficient investment products for both retail and institutional investors. The development of the ETF market is expected to enhance market depth, improve liquidity, and broaden investor participation.
