SSE Issues Guidelines of Shanghai Stock Exchange for Actively Managed Exchange-Traded Funds

On June 17, Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC), announced at the Lujiazui Forum support for the launch of active ETFs on exchanges. To ensure the smooth launch of active ETFs and protect the legitimate rights and interests of investors, the Shanghai Stock Exchange (SSE) released on the same day the Guidelines of Shanghai Stock Exchange for Actively Managed Exchange-Traded Funds (hereinafter referred to as these "Guidelines").

Active ETFs combine the professional investment research capabilities of active management with the standardized operational advantages of ETFs, featuring portfolio transparency and trading convenience. The development of active ETFs aligns with the high-quality development stage of China's capital market. It helps serve the wealth management needs of households and empowers the high-quality development of public funds. It is also of positive significance for enhancing the attractiveness of equity investment, strengthening the upgrade of capital market functions, and attracting medium- and long-term capital into the market. This is an important measure to implement the proposals of the 15th Five-Year Plan on "enhancing the institutional inclusiveness and adaptability of the capital market, and improving the capital market functions that coordinate investment and financing," accelerate the development of Shanghai as an international financial center, and boost the international competitiveness of the Shanghai market.

These Guidelines contain 15 articles. Focusing on the characteristics of active ETFs, they mainly set forth rules on the naming of active ETFs, the eligibility requirements for fund management companies and portfolio managers, product investment operations, information disclosure, and risk prevention, among other aspects. The key contents are as follows: 1. Clarifying the definition of active ETFs and their naming rules. On the one hand, an active ETF refers to an open-end fund listed and traded on an exchange for which the fund management company independently selects investment strategies with investment objective not aiming to track a specific index. On the other hand, the fund name shall contain the wording "Actively Managed Exchange-Traded Fund", and the on-exchange abbreviation shall include the word "Active". 2. Clarifying the Eligibility requirements for fund management companies. A fund management company shall meet conditions such as sound and stable corporate governance, compliant and prudent operations, and relatively extensive experience in active management. The company shall have effective investment operation and risk management systems, sufficient investment research personnel, and a stable ETF operation team and technical systems. A fund management company that develops an active ETF for the first time shall pass a special inspection and acceptance organized by the exchange. 3. Clarifying the Eligibility requirements for portfolio managers. A portfolio manager shall have extensive investment research experience, good medium- and long-term performance, and a stable investment style. 4. Clarifying the Requirements for product investment management. The fund's portfolio shall be broadly diversified with good liquidity, and the investment strategy shall have sufficient market capacity. The portfolio turnover rate shall be kept at a reasonable level, an appropriate performance benchmark shall be set, and a stable investment style shall be maintained. 5. Clarifying the Requirements for information disclosure. On the one hand, the fund management company shall prepare and disclose a PCF (Portfolio Composition File) daily based on the actual portfolio, and shall calculate and publish the IOPV (Indicative Optimized Portfolio Value) itself or entrust a relevant institution to do so. On the other hand, the fund management company shall provide risk warnings in the fund's information disclosure documents. 6. Clarifying the Requirements for risk monitoring and handling. The fund management company shall establish a risk monitoring system and guard against potential risks of the active ETF. The exchange may inspect the risk management and compliance of the product's operations.

Looking forward, in accordance with the unified deployment of the CSRC, the SSE will closely follow the main line of work of risk prevention, strengthened regulation, and promoting high-quality development, facilitate the smooth launch of active ETF products, and promote the high-quality development of the public fund industry.