BlackRock wants ETF rule to help competition

Removing impediments for potential issuers creates a bigger market, and perhaps more assets for BlackRock

Oct 24, 2017 @ 11:07 am

By Bloomberg News

BlackRock Inc. wants to take one for the team.

The world's largest asset manager is calling for a new rule in the $3 trillion U.S. market for exchange-traded funds that would remove some of the impediments faced by wannabe issuers and potentially curtail the advantages of early movers – like BlackRock, according to Mark Wiedman, global head of the company's iShares business.

"There should be a single rule that governs plain-vanilla ETFs in the United States," Wiedman said. "There's an unlevel playing field."

A lack of ETF-specific regulation means every aspiring issuer must be approved by the Securities and Exchange Commission under an exemption to the Investment Company Act of 1940. That's left decisions about details such as the breadth of securities a fund can absorb with the SEC, which has added constraints over the two-and-a-half decades since the first ETF was sold.

And those details really matter. ETF issuers that received their approvals before 2012 are able to accept a wider variety of stocks and bonds in return for newly created ETF shares. Those who came to ETFs later are more restricted, slowing both the issuance and adoption of some types of ETFs. A bigger market for these products could mean more assets for BlackRock.

(More: DOL fiduciary rule, along with two other regs, could be a boon for ETFs.)

Money managers including Goldman Sachs Group Inc., which started its first ETF in 2015, and Pacific Investment Management Co. are already lobbying for more flexibility. It's particularly important for funds that hold debt, as bonds often trade less and can be harder to find, making it tough to gather a specific list of securities to switch for shares in an ETF.

The SEC has contemplated an ETF rule for more than a decade, but demands to shake up the status quo have recently grown louder.

Last year, exchange operator Bats, now part of Cboe Global Markets Inc., sent a letter to the SEC urging a streamlined rule accommodating a wide range of ETF listings. For funds that don't meet generic exchange listing requirements, "the standards of review applied by the Commission staff are not well defined and have been subject to evolution from one product to the next, often resulting in a slow, inefficient process that is both frustrating and costly to issuers and the exchanges," Bats wrote.

The letter added that the SEC is "perhaps too conservative" in considering generic listing standards for ETFs.

NEW LEADER

Now might be the right time to push for change. The SEC's division of investment management, which approves ETFs, has a new leader after David Grim stepped down last month following 22 years at the Commission. Dalia Blass, a former member of the division who left for law firm Ropes & Gray in 2016, has taken over.

(More: Favorite fund companies of fee-based advisers.)

Europe's ETF industry is also poised for growth thanks to a new rule, known as MiFID II, that challenges pay-to-play advisory models and makes trading more transparent. Some of the estimated $600 billion of foreign money invested in U.S. ETFs could return home as a result, upping the stakes for the American industry.

"We're hopeful that we can get on the agenda for clarification and simplification for plain-vanilla ETFs," said Wiedman. "Our biggest challenge is less about receptiveness, it's that the SEC has many things to do."

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

WisdomTree's Maute: Developing elegant tech-enabled solutions

Advisers need unique technology-enabled solutions in order to have more time to expand their practice, according to WisdomTree's Alisa Maute. What can be done today to create a more thriving business of tomorrow.

Latest news & opinion

Meet our 2017 Women to Watch

Introducing 20 female financial advisers and industry executives who are distinguished leaders, advancing the business of providing advice through their creativity and hard work.

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print