Sri Lanka's Securities and Exchange Commission said the provisions of the code applies to all unit trusts, which are pooled investment funds, including exchange traded funds.
"The new unit trust code in addition regulation unit trusts will lay the regulatory framework for exchange traded funds to available in Sri Lanka," SEC director general Mali deleted said.
"Which means that gold ETFs, or any commodity ETF which will hav the physical as the underlying can be traded on the Colombo Stock Exchange.
ETFs, a type of collective fund, are usually not actively managed but track the performance of indices, or bonds or commodities like gold, with gold ETFs becoming very popular in India in a recent commodity boom.
At least three parties have inquired about starting gold ETFs in Sri Lanka.
Gold prices have risen over the past year amid a weakening US dollar, but have come off recent highs along with some other commodities.
ETFs are usually not actively managed but track a particular index of stocks or commodities and traded on an exchange instead of being bought and sold by fund managers.
The new Unit Trust Code 2011 introduced by the SEC said the prohibition imposed by rules in relation to investments in commodities shall not apply to Exchange Traded Funds tracking the price of gold or any other commodity approved by the Commission.
The prohibitions had applied to investments in commodities, futures and options.