The Securities and Exchange Commission (SEC) has voted unanimously to propose a new rule designed to speed up the listing process for certain ETFs. By lowering barriers to entry, the proposal is expected to facilitate greater competition and innovation in the US ETF marketplace.
Jay Clayton, chairman of the SEC.
Rule 6c-11, informally known as the “ETF Rule”, seeks to automatically classify ETFs that fulfil certain requirements (such as online daily portfolio disclosure, transparency of bid-ask spreads and historical premium/discount levels) under the Investment Company Act of 1940.
ETFs are currently considered hybrid investment products not originally provided for by the US securities laws. They are required to apply for individual exemptive orders, a process that the industry has criticized as arduous and costly.
The SEC will seek public comment on the proposal for 60 days.
“This proposal is an important step in moving a substantial portion of the $3.4 trillion ETF market under a rules-based framework that continues to provide the oversight and protections investors expect,” said Jay Clayton, chairman of the SEC.
“The development of ETFs has given investors options that can more effectively meet their goals. We should embrace such innovation and ensure that our regulatory framework allows for it, while being unwaveringly true to our investor protection mission. We will continue to monitor this market, including in consultation with our Investor Advisory Committee and our Fixed Income Market Structure Advisory Committee, and welcome public comment.”
Proposed rule 6c-11 would be available to ETFs organized as open-end funds, the structure for the vast majority of ETFs today. This includes both passive and actively managed funds.
ETFs not being able to rely on the proposed rule include those organized as unit investment trusts – the structure behind the $260 billion SPDR S&P 500 ETF Trust (SPY US), ETFs structured as a share class of a multi-class fund (such as most Vanguard ETFs), and leveraged or inverse ETFs.