The admission of securities of NewGold Issuer Limited (RF) (NewGold) on the Official List of the Stock Exchange of Mauritius (SEM) on 26th July 2013 was hailed as a milestone in the internationalization of the SEM. NewGold, an Exchange Traded Fund (ETF) established in South Africa and listed on the Johannesburg Stock Exchange (JSE), became the first ETF to be listed in Mauritius.
NewGold is designed to track the price of gold and creates an investment tool enabling investors to invest in a listed security that is fully backed by gold. In this instance, BLC assisted Absa CIB (formerly known as Absa Capital) in this secondary listing of NewGold securities, and in parallel advised on the legal and regulatory regime which would be applicable to the listing of the ETF. BLC further assisted in the drafting of the amendment of the SEM Listing Rules to pave the way for the admission of ETFs on the SEM.
ETFs have been known to investors across developed capital markets for some time now but are new in the Mauritian market. In its pursuit of internationalizing the Mauritian capital market, the SEM, a member of World Federation of Exchanges, has amended its Listing Rules for the Official Market to allow for the listing and trading of ETFs by including Chapter 21 to the Listing Rules. Further, to enable the listing of ETFs, the definition of securities under the Securities Act 2005 was broadened by the Securities (Instruments) Regulations 2013 to include "Exchange Traded Funds".
ETFs are open-ended passive investment products that track the performance of an index, a commodity or a basket of assets like an index fund but trades like a stock on an exchange. The introduction of ETFs, as product available for trading on the Official List of the SEM, is an important addition to the Mauritian capital market as it allows investors a way to gain broad exposure to asset classes, sectors, stock markets. ETFs are among the most dynamically developing investment tools owing to their low cost for both investors and issuers and also because of their transparency.
ETF securities cannot generally be bought or sold back to the ETF directly like shares in regular funds. The issue or redemption of ETF Securities by an ETF is possible when investors meet certain conditions which usually relate to a large number, or a block, of securities being redeemed or issued, or investors being able to contribute in specie for the issuance. Investors who want to sell their ETF securities can either sell the securities to other investors on the secondary market, or where such investor holds a block of securities, redeem with the ETF such block of securities. Investors redeeming their block of ETF Securities with the ETF usually have the option of obtaining instead of cash, the equivalent underlying asset and in the case of NewGold and subject to certain conditions, the equivalent physical gold.