SEC backs rule to ease ETF approval

The rule would cover passive and actively managed ETFs — at least those that promise to divulge their holdings.
FEB 27, 2008
Exchange traded funds will have an easier time coming to market if an SEC-backed rule proposal is passed. Currently, companies that wish to launch an ETF must secure an exemption order from the SEC in accordance with several provisions of the Investment Company Act of 1940, including one that requires fund shares to trade at a price based on the net asset value rather than at exchange-negotiated prices. The process can be time consuming, delaying the launch of some ETFs for years, industry experts said. The SEC declined to comment on what the proposed rule might look like. When SEC staff began discussing the possibility of a rule a few years ago, their focus was primarily on equity ETFs pegged to indexes. These days, however, companies have filed to offer many different kinds of ETFs, including actively managed ETFs. The rule would cover passive and actively managed ETFs – at least those that promise to divulge their holdings. “I’m anticipating the SEC include in this rule coverage for the first round of actively managed ETFs,” said George T. Simon, a partner with Foley and Lardner LLP, of Chicago, an attorney who has worked on a pending actively managed ETF from The Bear Stearns Cos. Inc. of New York.

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