Legislative initiatives on Exchange Traded Pension Funds

At the RF Government session of 1 December 2010 draft law “On introduction of amendments in the Federal Law "On Investment Funds"” prepared by the Federal Service on financial markets was reviewed. 


Among other novations the draft law introduces a new type of mutual funds – exchange traded funds. Index fund is an analogue to an exchange traded pension fund whose shares are traded at stock exchange. Shares of such funds are subject to listing at the stock exchange and can be traded at the exchanging market as common shares. Trade of shares and a stock exchange enables the investor to monitor the price of shares in real-time mode and parting from it take decisions regarding purchase or sale of shares during stock exchange trading session. 

Main difference between exchange traded pension fund and an ordinary fund lies in the fact that the right of the investment unit owner to require from the management company redemption and payment of monetary compensation is replaced with the right of the owner to demand from the person authorized by the management company (market-maker) buy out the investment unit at the price insignificantly different from its estimated value. At the same time this authorized person command exclusive rights to demand from the managing company to redeem bought out investment units. In order to implement the right of the investment unit of the exchange traded pension fund the authorized person is obliged to put up for the stock exchange public quotations for the purchase and sale of indicated investment units.

Russia already boasts of the creation and performance of exchange traded pension funds. For example, in summer 2010 "Troika Dialog" launched Open Index Mutual Fund ("Troika Dialog – Index RTS Standard"). With the help of this fund investor may purchase an investment portfolio representing Index RTS Standard as a single security – investment unit. 

In the USA and some other countries exchange traded mutual funds are rather popular instruments of collective investments. Only time will demonstrate the extent of popularity of this type of investment funds.

М.P. Goldin – legal consultant of Expertise and Normative Legal Acts Department