Actively managed exchange-traded funds have lagged the growth of passive ETFs on account of fund managers’ reluctance to divulge the constituents of their portfolios with the frequency and timeliness required by the traditional ETF structure.

Steve Cook, business executive, structured product services at BNY Mellon.

According to BNY Mellon’s ETF Services Group, the ETF arm of the global financial services provider, the number of actively managed ETFs is likely to increase significantly once the US Securities and Exchange Commission rules on proposals designed to discourage high-frequency traders from stepping ahead of active managers.

The transparency of the ETF structure has been one of the main attractions to investors dismayed by the opaque nature of traditional mutual funds. However, a less transparent product structure is considered by active managers to be necessary to protect their proprietary investment ideas and prevent high-frequency traders from front running their transactions. The proposals being considered by regulators would limit the transparency required for managers of active ETFs.

Steve Cook, business executive, structured product services at BNY Mellon, said, “Uncertainty around which proposal will be adopted has slowed the launch of actively managed ETFs this year.  However, once we have regulatory clarity, we expect a rebound in launches of actively managed ETFs. It will result in more options for investors, which is what everyone wants.”

BNY Mellon has been supporting actively managed issues since they were launched in 2008. “As active ETFs evolve and provide investors with new choices, BNY Mellon has been enhancing its technology to support the nuances of both non-transparent and transparent offerings in the active space,” said Cook.

Overall, Cook expects further growth in the ETF industry as investors continue to appreciate the benefits relating to liquidity, tax efficiency and costs.