SEC proposes new regulatory framework for ETFs
05 July 2018 Washington DC
Image: Shutterstock
The Securities and Exchange Commission has voted to propose a new rule and form amendments intended to modernise the regulatory framework for exchange-traded funds (ETFs), by establishing a framework for the vast majority of ETFs operating today.
According to SEC, the proposal will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors.
ETFs relying on the rule would have to comply with certain conditions designed to protect investors, including conditions on transparency and disclosure. The SEC will seek public comment on the proposal for 60 days.
Jay Clayton, chairman of SEC, said: 鈥淭his 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.鈥�
He added: 鈥淭he 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.鈥�
鈥淲e 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.鈥�
SEC has also adopted amendments to public liquidity-related disclosure requirements for certain open-end funds.
Under the amendments, funds would discuss the operation and effectiveness of their liquidity risk management programmes in their annual or semi-annual shareholder report.
The Commission adopted the open-end fund liquidity rule in October 2016 in an effort to promote effective liquidity risk management programmes in the fund industry.
Clayton commented: 鈥淭he amendments will require funds to make information on a key aspect of effective portfolio management available to investors. This additional information should enhance investor-specific evaluation and decision making.鈥�
He added: 鈥淎s we move forward, the SEC staff will review quantitative liquidity disclosures and evaluate whether there are common quantitative metrics that allow for comparison across similarly situated funds that can and should be disclosed to investors and the market.鈥�
According to SEC, the proposal will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors.
ETFs relying on the rule would have to comply with certain conditions designed to protect investors, including conditions on transparency and disclosure. The SEC will seek public comment on the proposal for 60 days.
Jay Clayton, chairman of SEC, said: 鈥淭his 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.鈥�
He added: 鈥淭he 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.鈥�
鈥淲e 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.鈥�
SEC has also adopted amendments to public liquidity-related disclosure requirements for certain open-end funds.
Under the amendments, funds would discuss the operation and effectiveness of their liquidity risk management programmes in their annual or semi-annual shareholder report.
The Commission adopted the open-end fund liquidity rule in October 2016 in an effort to promote effective liquidity risk management programmes in the fund industry.
Clayton commented: 鈥淭he amendments will require funds to make information on a key aspect of effective portfolio management available to investors. This additional information should enhance investor-specific evaluation and decision making.鈥�
He added: 鈥淎s we move forward, the SEC staff will review quantitative liquidity disclosures and evaluate whether there are common quantitative metrics that allow for comparison across similarly situated funds that can and should be disclosed to investors and the market.鈥�
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