What is an ETF?

Frequently Asked Questions

Update : Jul. 16, 2013


Frequently Asked Questions

General Questions

Listing and Disclosure

TSE-listed ETFs

Trading Method, Market Information, and Settlement

Foreign Investment Corporation Bonds (ETFs similar to Investment Corporation Bonds)


Q1) What is an ETF?

ETFs are investment trusts which are managed with the aim of tracking the daily movements of a stock price index, such as those seen on TV and in newspapers, and are listed and traded on stock exchanges.
*ETF is an abbreviation for "Exchange Traded Fund".
For details, please refer to the following.

Q2) What are the merits of ETFs?

For details, please refer to the following.

Q3) What are the differences with regular investment trusts?

For details, please refer to the following.

Q4) When there are multiple listed ETFs which track the same indicator, how should they be compared?

Because ETFs aim to produce results which track an indicator, investment results are essentially similar for those whose underlying indicator is composed of the same issues. In such cases, it is recommended that comparisons be made on the basis of factors such as management cost (trust fees), trading units, and trading volume. This information is available in product outline pamphlets and daily market information. Additionally, it is possible to confirm whether results tracking the indicator are actually being achieved via the timely disclosure information for each issue.

Q5) Where are ETFs bought? Also, where are foreign ETFs bought?

As with stock, it is possible to buy and sell ETFs through securities companies throughout Japan.

Q6) How much is required to purchase ETFs?

As with stock, trading units for ETFs are set for each issue. ETF trading units are set at 1-unit or 10-units, and some ETFs can be purchased for less than JPY 10,000. (As of June 2010)

Q7) What costs are involved?

In general, costs are the same as those for stocks, with one being the fee paid to the securities company when trading the ETF. Another is called the management fee (trust fee), which is a management fee borne by investors after purchase of an ETF. ETF management fees (trust fees) are generally low when compared to those of unlisted public investment trusts. Also, management fees (trust fees) are set at an annual rate in advance and are deducted from daily trust assets at a per-diem rate.

Q8) What taxes are required for ETFs?

he taxation of ETFs is the same as that for listed stocks and use of a specified account is possible.
However, "Foreign Investment Corporation Bonds (securities similar to investment corporation bonds issued by a foreign investment corporation)" are handled differently than other ETFs. For details, please contact the securities company of your choice.

Q9) Is margin trading possible?

It is possible to buy and sell ETFs via margin trading. (As a general rule, in addition to selection as a standardized margin trading issue from the date of listing, issues capable of being loaned are also selected as loan trading issues.) Because margin trading is possible, ETFs are highly convenient due to being able to be sold on margin during periods where the market is in decline and bought back afterwards for profit. Profits from price changes from collateral are also able to be received, giving ETFs a leverage effect as well (risks also exist). For that reason, margin trading of ETFs is the same as trading Bull Index Funds (price gain rates which surpass the stock price index) or Bear Index Funds (price loss rates that surpass the stock price index). Convenience is further increased by the availability of auction trading. In the case of Bull and Bear Funds, futures trading is conducted on a daily basis to produce a leverage effect, which incurs costs and thus lowers performance. However, in the case of ETF margin trading, because collateral is deposited and profits from increases and decreases in price are received, there are no costs arising from trading.

Q10) Can a specified account be used?

Yes. However, "Foreign Investment Corporation Bonds (securities similar to investment corporation bonds issued by a foreign investment corporation)" are handled differently than other ETFs. Additionally, there may be cases of some securities companies which do not handle such. Please inquire at your securities company for details.

Q11) Are dividends paid?

ETFs distribute funds much in the same way as dividends for stocks. The amount rises and falls in accordance with management performance, so payment will not occur in some cases. Furthermore, gold and commodity index-tracking ETFs do not distribute dividends.

Q12) What sort of risks are involved in ETFs?

Investors should primarily be aware of the following risks when investing in ETFs.
1. Capital and dividends are not guaranteed.
2. Because the fund’s assets are, as a general rule, all stock, it is subject to stock price movement.
3. In times of sudden fluctuations in the market, it may become difficult to track the underlying index.
4. In addition to the above, ETF prices may fluctuate due to a number of factors, including market demand.

Q13) What will happen if the management company goes bankrupt?

ETF trust assets are secure, according to the system. The asset management company only issues directions on the management of trust assets and is not responsible for holding the trust assets. Additionally, because trust banks are obligated to manage the trust assets separately from their own assets, even in cases of bankruptcy on the part of the trust bank, creditors will not be able to seize trust assets.

Q14) There are some issues with low trading volume. Is it possible to sell/buy such issues when desired?

In the secondary market for ETFs, in most cases, securities companies called "designated participants", which assist price formation, will place bids and offers based on the net assets per unit. Investors placing orders for regular trading amounts are generally able to conduct trading without problems. Additionally, though it is not reflected in the daily trading volume, the designated participant conducts creation (new issue) and exchange (redemption) of the ETF using the constituent issues of the underlying index in the issue market, and is thus able to respond to large orders of a certain amount or higher. In this way, price formation by designated participants in the secondary market and large orders through creation/exchange in the primary market provide a structure which increases liquidity. Even in cases of low trading volume, ETFs do not necessarily lose their liquidity.

Q15) What are the listing and delisting criteria for ETFs?

Listing Criteria

Track of an underlying stock price index, etc. is required by the ETF listing criteria. Specifically, it is required that the net assets and the underlying stock price index, etc. have a correlation of at least 0.9.

Delisting Criteria

In cases where an ETF no longer meets the listing criteria, it may be designated as a Security on Alert, for which there is a possibility of delisting, or a Security to be Delisted, for which delisting has been determined. Furthermore, delisting criteria pertaining to the number of beneficiary right units, numbers of beneficiaries, and trading volume were eliminated in the rule revision on November 1, 2007. Accordingly, under the current listing rules, ETFs will not be delisted for distribution or insufficiencies related to liquidity. For details regarding the listing and delisting criteria, please refer to the "ETF Handbook" on the page below.

Q16) What type of disclosure is required of ETFs?

The following information is disclosed on a daily basis through the TSE homepage (Company Announcements Service) by investment companies conducting creation of ETFs.

  • Number of listed beneficiary rights units, net assets, and net assets per unit (Daily)
  • Disparity between net assets per unit and closing price of stock price index (Daily)
  • Fund Earnings Information (Periodic), etc.

Q17) Where can I find detailed information on TSE-listed issues?

Details are available on the following page.

Q18) What are the differences with the trading method of regular stock?

There are no special rules for ETF trading which differ from those of regular stocks, as explained in detail below.

Trading Rules

  • As with stocks, orders may be placed as limit orders or market orders.
  • Tick sizes (order price) are also the same as those for stocks. In the case of TOPIX-tracking ETFs,

if TOPIX is at 1,600 points, the ETF will be priced at approximately JPY 1,600. This would mean it is handled the same as a JPY 1,600 stock. Because tick sizes for stocks up to JPY 2,000 are JPY 1, orders could be placed for a "JPY 1,601 bid" or a "JPY 1,602 offer".

Trading Units

  • Just as trading units differ for each issue for stocks, they also differ by ETF products.
  • TOPIX-linked ETFs have a trading unit of 100 units (or "100 shares"). At a price of JPY 1,600, it would be possible to trade with JPY 160,000 (JPY 1,600 x 100 units; fees, etc. not included).

Order Placement Method

  • As above, there are no differences with regular stock trading, so orders can be placed over the counter at a securities company or by designating the issue code on the internet trading screen.

Settlement Date

  • Settlement is conducted on T+3 or same day settlement. In the case of T+3 settlement, the money for the sale and the purchased ETF/ETN are exchanged on the 4th day counting from the transaction date, in the same manner as regular stocks.


  • As with stock dividends, dividends are paid from profits according to the earnings date. (However, there are cases where dividends are zero.) This is the same as payment of dividends following the account settlement date for investment trusts.

Q19) What kind of market information is provided for ETFs?

The same market information is available as that for stocks. It is possible to view price (ETF market price), trading volume, and trading value, as well as best 5 bids and offers, and pre-opening quotes.

Q20) How is trading conducted on the initial listing date of an ETF?

Though there is no price limit for stocks on their initial listing date, because ETFs are a product that tracks an underlying stock price index, etc., price limits are applied on the listing date based on the base price. The base price is set to the closing price of the underlying stock price index, etc. on the day preceding the listing date. For example, in the case of a TOPIX-tracking ETF with a base price of JPY 900, the price limit shall be JPY 800-1000. In the case of a Nikkei 225-tracking ETF with a base price of JPY 10,000, the price limit shall be JPY 8,000-12,000. From the following day, the base price shall be set to the final price in the ETF auction market (including special quotes) and price limits shall be applied, as with stock. Additionally, margin/loan trading is possible from the listing date (as a general rule, loan trading issues shall be selected from the listing date).

Q21) Is ToSTNeT trading available for ETFs? What kind of trading is expected?

TSE provides off-auction trading via ToSTNeT. By using ToSTNeT, the following types of highly convenient trading are possible.

1. For Individual Investors

It is possible to trade after the conclusion of the auction market, after seeing the closing price of the ETF on such date, thus meeting the needs of inexperienced investors who would like to trade having seen the closing price. For regular index funds, application must be made while the base price (trading price) for such date remains undetermined, however in the case of ToSTNeT, it is possible to purchase an index fund after the trading price has been set.

2. For Institutional Investors

Regarding EFP which exchange futures positions for equity positions, it is possible to use ToSTNeT for transactions where the price is determined between a securities company and an institutional investor. ETF are also exchangeable with equity baskets, and while EFP is conducted in the US, use of ToSTNeT facilitates smooth transactions. Additionally, just as active equity basket trading is conducted using ToSTNeT, it is also possible to execute large ETF transactions (=basket transactions) and avoid market impact over ToSTNeT.

Reference: ToSTNeT Trading

Single Issue Trading (ToSTNeT-1)
Trading Hours 8:20AM – 5:30PM
Price Price obtained by adding/subtracting an amount equivalent to the fees to the VWAP, within 7% of the most recent auction trading contract price (*).
*In cases where the most recent contract price multiplied by 7% is less than JPY 5, within a uniform JPY 5 range of the most recent contract price
Trading Method As a general rule, cross trading
Closing Price Trading (ToSTNeT-2)
Trading Hours 8:20AM – 8:45AM, 11:30AM – 12:15PM, 1:00PM – 4:00PM
Price Closing price in auction market or VWAP
Trading Method Continuous execution by time priority

Q22) Do short-selling restrictions apply to ETFs?

Short-selling restrictions essentially apply to ETFs, as well. The display and price restrictions for short-selling apply in cases of borrowing an ETF which you do not hold and selling it.
However, in consideration of the marketability of ETFs and nature of transactions, the following sales are exempt for short-selling restrictions (furthermore, as with stocks, margin sales by individual investors for 50 units or less per sale are exempt from short-selling restrictions).

  • Short sales of ETFs which were allotted via division of beneficiary rights
  • Short sales of stocks in cases where such stocks have been requested for exchange with an ETF
  • Short sales of ETFs in cases where additional creation has been requested for such ETFs
  • Sales for market-making purposes
    Additionally, the following transactions shall be exempt from price restrictions only. (The display obligation still applies.)
  • Short sales of ETFs in cases where the purchase of such ETF is made at the VWAP
  • Arbitrage trading between ETFs tracking the same indicator
  • Short sales of ETFs or stocks, etc. in cases of arbitrage/hedge trading of such ETFs or stocks, etc.
  • Short sales of ETFs in cases of arbitrage/hedge trading of such ETFs and index futures
  • Short sales of ETFs in cases of arbitrage/hedge trading of such ETFs and ETF options
  • Short sales of ETFs conducted to standardize the price of such ETF with the underlying stock price index, etc.

Q23) How is ETF arbitrage trading conducted?

Because ETFs are managed with the aim of tracking the underlying stock price index, etc., arbitrage trading will occur using the fact that ETF price movements are similar to those of the underlying index and exchange/creation between certain equity baskets, etc. . As such, it is expected that arbitrage trading using such exchange/creation will be conducted.

The following are examples of arbitrage trading which uses additional creation in cases of the ETF price being higher than the underlying equity price. The difference in the ETF sale value and equity purchase value on T-date results in the arbitrage profit (loan costs, etc. are not included).

ETF Stock Additional Creation
T Short sales of borrowed high-priced ETF Purchase of low-price equity required for additional creation
3 - Receipt of sale money
- Delivery of ETF
- Payment of purchase money
- Receipt of purchased equity
Application for additional creation based on purchased equity
4 Repayment of ETFs to lender ETF issuance

Additionally, in addition to arbitrage trading utilizing equity baskets, it is expected that ETFs will be used in index futures trading as well. For example, in cases where the ETF market price is at a discount to the equity basket, an ETF purchase combined with a new arbitrage position for purchase would result in a discount.

  • (*)Foreign ETFs (overseas ETFs) differ from domestic ETFs in that creation and exchange may not be possible within Japan.
  • (*)For the "Nikkei 300 Stock Index Listed Fund", creation is done with cash, as with regular investment trusts, instead of equity baskets.

Q24) How is ETF settlement conducted?

Settlement of ETFs traded on the TSE market is conducted by securities company account transfer at Japan Securities Depository Center, Inc. (JASDEC). Furthermore, dividends from profits are paid to beneficiaries as of the base date according to the handling of domestic stocks. For dividends from profits for foreign ETFs, such dividends are received by the depository institution of the foreign ETF in its home country and paid to the designated bank accounts of beneficiaries via a bank handling dividend payments in Japan (trust bank, commercial bank) by transfer or postal money order.

Q25) What is an "Investment Corporation Bond"?

  • An investment corporation bond is a bond issued by an investment corporation (company-type investment trust).
  • A foreign investment corporation bond is a security similar to investment corporation bonds issued by a foreign investment corporation.

Q26) Please tell me about the "Foreign Investment Corporation bonds (Securities similar to Investment Corporation Bonds)" that are listed on TSE.

(1) Specifically, what types of ETFs are listed?

The 5 physical metal ETFs (gold, silver, platinum, palladium, and metal basket) and 14 commodity ETFs from ETF Securities are foreign investment corporation bonds (securities similar to investment corporation bonds). For details regarding these ETFs, please refer to the product overview pamphlets or the homepage of ETF Securities.

(2) What type of company is ETF Securities?

ETF Securities is a financial corporation based in London. With a focus on commodity ETFs, ETF Securities has over 150 types of ETFs listed on exchanges in 6 European countries, Australia, and the US.

Contact in Japan
ETF Securities Management Company Limited
Akasaka 1-12-32, Arc Mori Building 12F
Tokyo-to Minato-ku 107-6012
TEL: +81-3-4360-9101

(3) Is exchange for commodities possible? Are the ETFs backed by physical commodities?

• ETF Securities is unable to exchange ETFs for commodities. Precious metal ETFs, such as gold, are backed by the physical metal. In contrast, energy, industrial metal, agricultural produce and other such commodity ETFs track the underlying indicators via bond, etc. holdings and swap contracts.

(4) Please tell me about taxation.

• The ETFs of ETF Securities are handled as investment corporation bonds issued by a foreign investment corporation and as of April 2010, capital gains from such are subject to taxation (aggregate taxation). Furthermore, submission of a payment record is not required. For details, please refer to the homepage of ETF Securities. Please note, this is subject to change with future law revisions.

(5) Are dividends paid?

No dividends are paid by the ETFs of ETF Securities. They also have no maturity.

(6) Are there any differences in the trading method and that of stocks?

There are no particular differences. Trading occurs via the stock trading system.


This FAQ is an outline of the nature of ETFs and their trading rules. When trading ETFs, there is a possibility of incurring losses due to movements in the price of the product or the underlying securities. Additionally, when conducting margin trading, there is a possibility that losses could exceed deposited collateral. Please adequately read the documents distributed by the financial instruments business operator before concluding an agreement and ensure you sufficiently understand the products, rules, fees, and risks involved, before trading under your own responsibility and judgment. Tokyo Stock Exchange, Inc. reserves all rights pertaining to this FAQ. Separate use or duplication of this FAQ, in full or in part, without permission is expressly prohibited.

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