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Portfolio > ETFs

David Grim, Ex-SEC IM Director, Discusses Long-Awaited ETF Rule

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While the closing on Tuesday of the comment period on the Securities and Exchange Commission’s advice standards package — and the letters that flooded in as a result — was the big news of the week, another significant comment deadline looms on a long-awaited ETF rule.

The SEC proposed on June 28 a plan to allow many ETFs to come to market without first obtaining exemptive relief from the Investment Company Act of 1940 — a plan that updates and attempts to streamline 26 years of ETF approvals by the agency through hundreds of exemptive orders. The comment period ends on Oct. 1. 

I caught up this week with David Grim, the former head of the SEC’s Division of Investment Management (the division charged with putting the ETF plan together), to chat about the SEC’s plan.

Grim, now a partner at Stradley Ronon in Washington, spent 20 years in the SEC’s IM division, including a stint as its director. He says an ETF rule “has been a priority of the commission for a long time,” with one being proposed “right before the financial crisis.”

However, “priorities changed after the crisis hit, and the rule did not get adopted at the time,” he relayed.

There’s been a consensus at the commission “around the importance of getting a rule on the books.”

“Clearly one of the potentially important product developments of the day would be some kind of crypto ETF,” Grim said, with public comments “already filed on the rule proposal” being about crypto ETFs.

But that may be hard to come by as SEC Chairman Jay Clayton has voiced his concerns about the crypto market. The agency on July 27 rejected a request to list a crypto-related ETF run by Tyler and Cameron Winklevoss, and the securities regulator has put off until late September a decision on the Bitcoin ETF filing by Direxion.

The SEC rule release “talks about covering most ETFs, leveling the playing field for most ETFs,” Grim states.

Which ETFs aren’t covered by the relief provided in the proposed rule? “Leveraged ETFs, crypto ETFs and actively managed ETFs that provide transparency in a different way from that contemplated by the rule,” according to Grim.

Other important developments in the fund world now, Grim adds, are the SEC’s liquidity risk management rules. “Registered funds currently are in the process of implementing those rules.”


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