ETFs Move Toward Tailored Regulation as CSA Seeks to Strengthen Oversight

After years of record growth, exchange-traded funds (ETFs) in Canada may finally get their own regulatory framework. The Canadian Securities Administrators (CSA) is consulting on a series of rule changes designed to reflect ETFs’ unique market structure and improve investor protection.

CSA Considers Custom Rules for ETFs

For decades, ETFs have operated under rules designed for mutual funds — a workable setup when the ETF market was small and passive.
But with billions in assets and growing complexity, regulators now say the time has come for ETF-specific rules.

The CSA’s June consultation paper proposes new requirements that would:

• Formalize existing practices for ETF creation and redemption;

• Require funds to maintain at least two market makers with equal treatment;

• Mandate greater disclosure around liquidity and price deviations.

“A tailored ETF framework can strengthen investor protection, boost confidence, and foster competition,” the CSA wrote.

The proposal aligns with recent global guidance from the International Organization of Securities Commissions (IOSCO), which encourages countries to adopt clearer ETF standards.

OSC Study Finds Market Resilience but Stress Vulnerability

The Ontario Securities Commission (OSC) analyzed ETF trading data from 2019–2023 and found that most ETFs were highly liquid and traded close to their net asset values (NAVs) under normal conditions.
However, deviations widened sharply during the market stress of early 2020.
ETFs with multiple authorized participants (market makers) showed smaller deviations, while thinly traded funds saw larger ones.

These findings support the CSA’s push for mandatory multiple market makers and enhanced transparency about arbitrage performance and liquidity.

Mixed Industry Feedback

The industry largely supports the CSA’s initiative.
The Independent Financial Brokers of Canada (IFB) said that better disclosure around trading metrics will help advisors explain ETF costs to clients more clearly.

The Canadian Independent Finance and Innovation Counsel (CIFIC) welcomed the multiple market-maker requirement, saying it would “enhance transparency and market efficiency.”
However, it cautioned that forcing ETFs to disclose contractual details with market makers could expose firms to legal risk.

Debate Over Real-Time NAV (iNAV)

Regulators rejected the idea of requiring ETFs to publish real-time NAVs (iNAVs), arguing that the figure might mislead retail investors.
CIFIC disagreed, urging the CSA to follow U.S. standards by publishing iNAVs every 15 seconds to improve transparency and efficiency.

Single-Stock ETFs Add New Oversight Challenges

Recently approved single-stock ETFs introduce additional compliance complexities.
The Canadian Investment Regulatory Organization (CIRO) has introduced new volatility control measures, including temporary trading halts, to manage risks in these products.

A Turning Point for Canada’s ETF Market

The CSA’s consultation marks a major step toward a dedicated regulatory regime for ETFs — one that could balance innovation, investor confidence, and fair competition.