Active ETFs: the AMF publishes a recommendation on the transparency of portfolios

The possibility of creating active ETFs in France

An ETF is a collective investment scheme of which at least one category of units or shares is tradable continuously on a regulated market. The secondary market is animated by (at least one) market makers and the primary market by (at least one) authorized participants.

While the European framework already allowed the listing of active ETFs (funds admitted to trading on a regulated market and whose portfolio is actively managed), the French framework only provided for the listing of “index funds”, which aim to reproduce the performance of an index, and “algorithmic” funds, which aim to replicate the result of an algorithm. The decree No. 2024-151 of February 27, 2024 and the decree of March 27, 2024 published in the Official Journal of March 28, 2024 aim to allow the creation and the listing of active ETFs in France.

The AMF recommendation

In order for market makers to be able to display competitive quotes in all circumstances, they must know as precisely as possible the composition of the basket of assets that compose the ETF. This information is generally made available to market makers and authorized participants daily by the ETF management company before the opening of the European markets in the form of a “PCF” file (Portfolio Composition File) and published at the same time, or a day later, on its website. 

Active ETF managers implement an investment strategy that includes an element of judgment, for example based on fundamental or quantitative research, which provides added value compared to a passive ETFs. However, daily and exhaustive provision of the portfolio of an active ETF would potentially allow other players to replicate the strategy, which could constitute a major obstacle to the development of the offering of active ETFs for investors.

The AMF is therefore publishing a recommendation at the attention of management companies managing active ETFs so that they can differentiate access to the exact composition of the portfolios between market participants who need it to effectively manage the liquidity of the primary and secondary markets and all other market participants. This recommendation takes the form of six main principles that management companies should comply with in order to ensure that such differentiation ultimately benefits end-investors, without allowing participants benefiting from more frequent transparency to be able to profit from it unduly, in respect of the objectives of the AMF position DOC-2004-07 on market timing and late trading.