While the Investment Company Institute is gung-ho about the Securities and Exchange Commission’s proposed ETF rule, the mutual fund trade group says the plan needs modifications — specifically to measures intended to help illustrate trading costs.
In a Friday comment letter to the agency on its long-awaited ETF rule, ICI recommended that the SEC consider providing alternative disclosures to help investors understand ETF trading costs and urged the commission to consider ways to streamline the regulation of ETFs under both the Securities Exchange Act of 1934 and the Investment Company Act of 1940.
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.
“ETFs have been one of the most successful, popular financial innovations in recent years. By advancing this rule, the SEC sends a signal that ETFs are an investment product that deserves its own uniform regulation under the Investment Company Act of 1940,” Susan Olson, ICI’s general counsel, stated in the comment letter. “Once in place, this new rule and related disclosures will help provide an updated framework for this growing industry and enhance the ETF investor experience.”
The rule does not distinguish between index-based ETFs and actively managed ETFs, Olson notes.
As ICI also notes, the SEC also proposes certain disclosure amendments intended to provide investors who purchase and sell ETF shares in the secondary market with additional information to help them understand ETF trading costs.
Olson told the agency, however, that ICI has “serious concerns” with the plans’ proposed new section that would add a series of question and answers requiring disclosure of certain ETF trading information and trading costs.
“Although we support narrative disclosure that would highlight the transaction fees and costs for ETFs that are not reflected in the fee table, we do not believe ETFs should be required to calculate and disclose their bid-ask spread costs,” Olson stated.
“Unlike an ETF’s other quantitative disclosure responsibilities, an ETF does not control bid-ask spread costs and must either purchase market data to calculate it or rely on third-party vendors for this information.”