Bahrain issues ETF regulations

Manama : The Central Bank of Bahrain (CBB) has released directives for both offshore and locally domiciled Exchange-Traded Funds (ETFs), as part of the its commitment to further enhance the Collective Investment Undertakings (“CIUs”) in the Kingdom of Bahrain under Volume 7 of CBB Rulebook.

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 licensed exchanges. It will also permit the registration of listed offshore ETFs as detailed in CBB Rulebook Volume 7.

Moreover, the new directives recognize both conventional and sharia 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 licensed exchanges.

Abdulrahman Al Baker, Executive Director for Institutions Supervision, said: “ETFs have grown substantially in international markets as one of the most successful financial innovations in recent years. Introducing the new ETF directives in the Kingdom of Bahrain will certainly attract local and foreign investments and further enhance the capital markets activity”.

The details of the new directives are now available at the CBB website under Volume 7 of CBB Rulebook that governs the rules and regulations of Collective Investment Undertakings (“CIUs”).