SEC passes proposal easing ETF rules

Exchange traded funds would be able to start up more easily and mutual funds could make larger investments in them under a proposal issued by a 3-0 vote today of the Securities and Exchange Commission. ETFs, which have been gaining in popularity in recent years because of their low fees and tax efficiency, would not have to receive an exemption from SEC rules in order to register under the proposal. The proposal would apply to indexed ETFs, which make up most of the market, as well as new actively-managed ETFs that are being brought to market that trade on national securities markets and provide daily pricing. ETFs differ from mutual funds in that they are priced like stocks throughout the day, while mutual funds are priced once a day after trading is over. Mutual funds are currently limited to acquiring no more than 3% of another mutual fund company’s shares. Those rules would be loosened under the proposal. The proposal also would amend registration forms used by open-end mutual funds to offer their securities. Key information for investors who buy ETF shares on the secondary market would be included in the registration form. Unlike mutual funds, which sell their shares directly to investors, ETF shares are typically traded among investors, as stocks are. SEC commissioner Paul Atkins said the changes are necessary, according to reports. The agency’s ETF review process has taken years, he said. “Investors are the losers in all of this,” he said.