Milestone ETF Rule passed

Global regulators are taking notice of the maturation of exchange-traded funds, with the US Securities and Exchange Commission adopting a new rule to modernise their regulation.

Twenty seven years on from the launch of the first ETF, the SEC has voted to adopt a new rule and form amendments designed to improve the regulation of ETFs by establishing a clear and consistent framework for the majority of ETFs currently in operation.

The adoption of Rule 6c-11 - also known as the ETF Rule - will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors and lower barriers to entry, the regulator said.

The new rule will also make it easier for issuers to launch new ETFs to market, removing the need to apply for individual exemptive relief. The SEC also voted to issue an exemptive order that further harmonises related relief for broker-dealers.

"The actions announced today will replace hundreds of individualized exemptive orders with a single rule," the SEC said.

"The rule's standardised conditions are designed to level the playing field among most ETFs and protect ETF investors, while disclosure amendments adopted by the Commission will provide investors who purchase and sell ETF shares on the secondary market with new information."

SEC chair Jay Clayton added: "Since ETFs were first developed over 27 years ago, they have provided investors with a number of benefits, including access to a wide array of investment strategies, in many cases at a low cost."

"As the ETF industry continues to grow in size and importance... it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections."

The ETF Rule will require issuers to publish daily portfolio holdings on their website as well as historical data relating to premiums and discounts and bid-ask spreads to ensure transparency.

However, the rule does not apply to all ETFs, with it not applicable to most unit trusts; leveraged or inverse ETFs; those structured as a share class of a multi-class fund; or active ETFs.

To date, ETFs in the US have been regulated in the same way as mutual funds and were offered exemptive relief by the SEC, whereby the issuer would lodge an application justifying why rules applied to mutual funds shouldn't be applied to a new ETF.

Since 1992, the SEC has issued more than 300 exemptive orders allowing ETFs to operate under the Investment Company Act, the regulator said.

Since then, the US ETF industry has grown to more than $3.3 trillion.

Read more: SECETF RuleUS Securities and Exchange CommissionJay Clayton
Link to something zJducgzD