The Securities and Exchange Commission is poised to dust off a rule proposal on exchange-traded funds that was first released in 2008.
“This is a rule the staff would love to do,” Diane Blizzard, associate director of the SEC’s Division of Investment Management, said at the Investment Company Institute’s Mutual Fund and Investment Management Conference in Orlando, Fla., on Monday. “We’re looking at issues that really weren’t addressed in ’08 but are issues now.”
Among the areas that a revised rule would touch on are the distinctions between active and index funds, transparency surrounding indirect and underlying instruments, flexibility in the creativity the funds could exercise, and inverse leverage.
“The way to look at this is that we’re hitting the refresh button,” Ms. Blizzard said.
She didn’t provide a timeline.
“We’re hopeful it will happen sometime soon, but we can’t give you any specifics,” Ms. Blizzard said.
Without a rule in place, the Division of Investment Management makes individual decisions as to whether to approve new ETFs.
The industry has changed dramatically since the first rule was proposed, said John Zerr, general counsel at
Invesco Advisers Inc.
“The distinctions that I think made sense back six years ago may not be all that relevant today, as our very creative product developers are seeking to fill market needs, and those market needs don’t think about the world in buckets of active or passive,” Mr. Zerr said to Ms. Blizzard as they participated on the same panel.
The SEC staff will listen to the industry so that the rule keeps pace with the market, Ms. Blizzard said.
“We’re going to be asking a lot of questions that you’re asking yourselves and that you’re asking us here,” Ms. Blizzard said. “In the release, you’ll have the opportunity to comment and provide us the benefit of your experience.”
Another item on the agenda of the Division of Investment Management is improving disclosures related to variable annuities.
Norm Champ, director of the division, said at the conference that the complexity, costs and benefits surrounding the products have to be better explained to “seniors and others seeking ways to fund retirement in a low-interest-rate environment.”
“We do think this is an important initiative,” Mr. Champ said. “Currently, those who buy variable annuities are provided with disclosure that resembles almost the thickness of a phone book.”
As they follow regulatory developments at the SEC, Mr. Champ encouraged conference attendees to read guidance updates the division posts on its section of the agency’s website. The SEC issued 14 updates in 2013 and three so far this year.
“We see them as helpful communications representing staff thinking on discrete issues, not as substitutes for rule making or exemptive approvals and no-action relief,” Mr. Champ said.
