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  • msf September 2019
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Will The SEC’s New ETF Rule Benefit Investors?

TedTed
in Fund Discussions
FYI: (This is a follow-up article.)

The $4 trillion exchange-traded fund industry has, for the last 27 years, operated via a quirk in the law. After some dramatic back-and-forth this week, the Securities and Exchange Commission has finally changed that.

The 2,273 ETFs on the market today have essentially been created via a loophole in the law that governs mutual funds and other investment products for individual investors. The much-hyped and long-awaited “ETF Rule” was supposed to change that, making it easier for companies to create new products. After canceling an open meeting scheduled for Wednesday to vote on this proposed regulation, the SEC announced on Thursday that it has in fact adopted the ETF Rule, more officially known as Rule 6c-11.
Regards,
Ted
https://www.barrons.com/articles/will-the-secs-new-etf-rule-benefit-investors-51569519577?mod=djem_b_Weekly Feed for Barrons Magazine

Comments

  • msf
    "Loophole" is a loaded word that IMHO is being misused here. Since ETFs trade on exchanges they don't exactly fit into the 1940 Investment Company Act's rules for OEFs. That Act allows them to individually apply for "exemptive relief" so that ETFs can operate despite the incompatible rules.

    If that procedure is a "loophole", then what they're getting is a gaping hole. That's because starting now most ETFs get to do the same thing they've always been doing, except without having to ask for permission. It's now automatic.

    Nor has the exemption procedure (the so called "loophole") been eliminated. Leveraged ETFs, ETFs structured as UITs, and Vanguard patented ETFs (structured as share classes of OEFs) still have to go through this procedure. So the procedure is still available. Just not often needed.

    Note that this new rule is available only for funds that are willing to disclose holdings daily. Currently, passively managed funds need only disclose quarterly, like OEFs. That option remains, but those ETFs wanting to disclose less than daily will still have to seek "exemptive relief" - using ye olde "loophole".

    SEC press release: https://www.sec.gov/news/press-release/2019-190
    SEC final rule: https://www.sec.gov/rules/final/2019/33-10695.pdf
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