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Bulletin #0686-P

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Marc Guerin
Director, Member Education
For Distribution to Relevant Parties within your Firm

Summary of Comments – MFDA Bulletin #0653-P Consultation Document on the Proficiency Standard for Approved Persons Selling Exchange-Traded Funds (ETFs)

On July 22, 2015 the MFDA published, for a 60-day public comment period, a proposed Proficiency Standard for Approved Persons Selling ETFs. The public comment period expired on September 16, 2015.

The MFDA received 4 submissions and a summary of comments received is attached as Schedule “A” to this Bulletin.

MFDA Staff will consider comments received in the development of its ETF proficiency standards which will be published at a later date.



MFDA Bulletin #0653-P Consultation Document on the Proficiency Standard for Approved
Persons Selling Exchange-Traded Funds (ETFs) Summary of Comments

General Comments

It was noted that terms such as “Approved Person” and “Dealing Representative” are used interchangeably throughout the Consultation Document. It was suggested that, in such cases, one term be adopted and used consistently throughout the Document. It was also recommended that the MFDA post to its website a full list of education courses that would meet the contemplated ETF proficiency standard.

Request for Clarification on Application of Rule

One commenter recommended that the “Application of the Rule” be clarified. In this regard, it was noted that such clarification should specify that the proposed ETF proficiency standards do not apply to Approved Persons selling conventional mutual funds (i.e. those not sold on an exchange), where such funds also happen to hold the units of one or more ETFs.

Specific Comments – Proficiency Standard Table

The following comments were also received in respect of the ETF proficiency standard table.

General Topic



Introduction to ETFs

Registration/licensing requirements and limitations

Add clarification respecting how and why ETF distribution by MFDA advisors is restricted to Canadian listed ETFs.

Description of ETFs that cannot be sold by Approved Persons

When discussing the exclusion of commodities, note that exposure to Gold is acceptable if such exposure is not leveraged or inverse.

Add a discussion of Index Participation Units and the different concentration rules applicable to ETFs.

When discussing derivatives, include a discussion on:

  • Total Return Swaps, and
  • Rate swaps

Characteristics of ETFs

Creation and Redemption of units

Add a brief section respecting the operational and cost benefits of in-kind transactions.

Discuss the tax and cost efficiency of ETFs that arise as a result of the ability to trade in larger share blocks (PNUs or Prescribed Number of Units).

General Risks

Explain how ETFs are categorized by CIFSC and how the (interim) ETF Risk Rating system works.

Explain the 10% limitation on Counterparty Risk and how it is measured.

Add a discussion respecting volatility and where it may impact an investor.

Exchange Trading

Quotes System

Explain trading at a Premium vs trading at a Discount.

Provide an update on the removal of ETFs from the MOC (Market On Close) facility.

Address splits and consolidations.

In discussing Bid/Ask spread – identify the components that impact bid/ask spread, such as:

  • The number of market makers,
  • Market maker spread,
  • Trading costs,
  • Liquidity and bid/ask spread of underlying securities of the ETF,
  • Time of day (ETF may trade at a different time of day than the underlying securities).

Market Depth and Liquidity

Add a discussion regarding liquidity of ETFs and the role of the market maker.

Investing in ETFs

Review existing obligations

Expand on the suitability section to review ETFs from an internal compliance/Risk Ratings perspective, as noted above.