In addition to SEC approval, ETF managers who buy China’s domestic securities need a Renminbi Qualified Foreign Institutional Investor license, known as an RQFII. They also need to submit an application to China’s State Administration of Foreign Exchange for an investment quota. Gaining access to certain domestic fixed-income markets also requires approval from China’s central bank.
The lengthy process explains why so many ETF providers are looking to get potential funds registered early, Ahern said.
‘Unique Exposures’
There are about twice as many filings for ETFs that would invest in China’s onshore stocks and bonds than there are for funds seeking to trade only overseas-listed securities, according to data compiled by Bloomberg.
“Providers have recognized an opportunity,” Chris Hempstead, the head of ETF sales at KCG Holdings Inc. in Jersey City, New Jersey, said by phone. “The existing products offering exposure to China A-shares are still relatively new, and the products in the pipeline are likely to offer unique exposures of their own.”