While delivering an exchange-traded fund rule is a “high priority” for the Securities and Exchange Commission’s Division of Investment Management and is overdue, said Dalia Blass, IM’s director, perhaps it’s also time for ETF index providers to register as investment advisors.
During her March 19 remarks at the Investment Company Institute’s mutual funds and investment management conference in San Antonio, Blass noted that, as it stands now, the ETF industry is a more than $3.5 trillion market operating under more than 300 individually issued exemptive orders.
“It is not ideal for such an important segment of the asset management market to operate under so many individual exemptive orders,” Blass said.
While exemptive orders “are great for flexibility, they have drawbacks, too,” Blass continued. For instance, “there is the obvious expense to new entrants of obtaining orders. There are also less obvious costs. These include differences in the playing field as well as uncertainty that results from lengthy orders and variable wording.”
With all of this in mind, she said, “delivering a recommendation to the Commission for a rule is a high priority for the Division, and our ETF team is hard at work.”
ETF nomenclature will be a focus, too, Blass said, in that the term “ETF” has been “stretched,” so that “investors have had to work harder and harder to identify important differences in risk.”
In the early days, the term “ETF” meant something “fairly specific,” Blass said. “Today, however, the term is used to describe investment companies with a wide range of strategies as well as a number of products that are not investment companies or even funds.”
Said Blass: “Are the differences in risks, investment strategies and investor protections among ETFs, commodity pools and exchange-traded notes (ETNs) clear when the term ‘ETF’ is often used for all three? Do people assume, when they see ‘ETF,’ that they are looking at a 1940 Act fund? Should we be considering different approaches to ETP nomenclature? I would welcome thoughts from investors, funds and advisors on whether addressing ETP nomenclature would be helpful to investors and the markets.”