SEC approves streamlining of active ETF listings

Jul 27th, 2016 | By | Category: ETF and Index News

The US Securities and Exchange Commission (SEC) has granted approval for certain actively managed exchange-traded funds to reach the market faster than they currently are. The new rule will mean that ETFs that are actively managed – where the stock or bond holding is picked by human mangers as opposed to from an index – will see the time taken between initial filings and launch shortened.

SEC approves streamlining of active ETP listings

Chris Concannon, CEO of Bats Global Markets.

The move aims to bring the listing process for actively managed ETFs in line with the one used for index-based ETFs. The relaxation of the regulatory burden is a victory for the New York Stock Exchange and Bats Exchange, who launched their petitions in November of last year.

Actively managed ETFs fall under SEC Rule 19b-4 of the 1934 Securities Exchange Act. This requires an exchange to file a detailed description of a new derivative product, including options, warrants, hybrid securities and certain ETFs, on Form 19b-4 with the SEC for approval. Once approval is granted it can then be offered on exchange.  The case-by-case approval required for these ETFs significantly increased the costs and duration of the listings process.

However, with immediate effect many actively managed funds will be able to list new ETF products without a separate filing with the SEC under SEC Rule 19b-4 if the ETF meets similar standards as specified for index-based products.

Doug Yones, Head of ETFs at NYSE, believes this will promote innovation in the growing ETF industry. “We are pleased that our efforts to rationalise the listings process for actively managed funds will provide issuers with greater certainty on timing and efficiency when launching new products.

“The NYSE is committed to reducing complexity in US markets to benefit issuers, market participants and investors. We are also proud to support our issuer community with the largest, most liquid, and highest quality ETF market, coupled with an unparalleled service model to navigate each stage of their product life cycle, from product development, launch and then active trading.”

Chris Concannon, CEO of Bats Global Markets, said: “This is a pivotal moment for the ETF industry as the introduction of these standards will help issuers of all sizes bring innovative funds to the market in weeks instead of months, and with more certainty of approval. In turn, investors will gain access to a much broader range of low-cost, high-performance investment products.

“Today’s approval is the result of nearly two years of intensive efforts and underscores our commitment to ensuring the ETF market is as efficient and innovative as possible.”

While the initiative will help speed up the listing process for active ETFs, the requirement for the ETFs to adhere to certain generic structures and standards is designed to prevent overly complex ETFs, or those using high risk financial instruments such as highly leveraged derivatives, from being brought to market without a greater degree of scrutiny. For example, the criteria limit the types of equity and fixed-income securities that the ETF may hold as well as the use of certain leveraged derivatives. Minimum capitalisations and trading volumes for portfolio securities are also enforced to reduce the risks associated with low liquidity within the underlying holdings.

Actively managed ETFs that do not meet the generic mould must continue to apply for and receive an order from the SEC before they can be listed on exchange.

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