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Regulation and Compliance > Federal Regulation > SEC

Wait for ETF Rule Is Over as SEC Slates Discussion for June 28

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SEC headquarters in Washington. (Photo: National Law Journal) (Photo: National Law Journal)

The U.S. Securities and Exchange Commission has set a date to consider a new rule that would speed the process of bringing an ETF to market.

On June 28, the SEC will discuss whether to propose regulations that would allow asset managers to sell certain types of exchange-traded funds without first gaining its approval, according to the commission’s agenda. Under current rules, wannabe ETF issuers must get SEC permission — a process known as exemptive relief — before selling funds under the Investment Company Act of 1940.

It’s wonky stuff, but the new regulation has the potential to significantly shake up the $3.6 trillion U.S. ETF market. Currently, the industry’s 80-plus issuers all operate under different orders that have inadvertently given some firms a competitive advantage. ETF advocates have been lobbying the SEC to level the playing field for years. Regulation that would have done it was first killed more than a decade ago.

The SEC’s agenda says Rule 6c-11 “would permit exchange-traded funds that satisfy certain conditions to operate without first obtaining an exemptive order from the commission.” Issuers want the regulator to go further and make it easier for managers to choose the securities they add to or subtract from their ETFs when they issue and redeem shares. Some early adopters like BlackRock already have this flexibility, but newer entrants face greater restrictions.

If the regulator gives the nod to proposing the rule, a public comment period is likely before the SEC settles on the final version.

— Check out ETFs Are Millennials’ Product of Choice: Schwab on ThinkAdvisor.


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