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SEC to Discuss Long-Awaited ETF Rule Fix

June 25, 2018 By Jeremy Jones, CFA

By g0d4ather @ Shutterstock.com

For years companies have been asking for the SEC to fix broken ETF rules, and now the commission may finally be approaching a solution. Rachel Evans reports at Bloomberg:

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 Inc. already have this flexibility, but newer entrants face greater restrictions.

Read more here.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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