SEC Proposes Rule to Allow Most ETFs to Operate without Exemptive Relief

The Securities and Exchange Commission is proposing to simplify and modernize the regulatory framework governing exchange-traded funds and enhance information to investors about the costs of purchasing ETF shares. If adopted, the proposal would, among other things:

• Allow most ETFs to operate without first obtaining exemptive relief, by relying on a proposed new rule;
• Provide greater flexibility with respect to aspects of ETF operations than exists under exemptive relief issued in recent years, including the use of “custom baskets” for creation and redemption transactions; and
• Require additional disclosures regarding ETFs’ trading costs, including certain bid-ask spread information.

The SEC’s proposal also would rescind existing exemptive relief for those ETFs that are eligible to rely on the proposed rule.

The SEC unanimously voted to propose new Rule 6c-11 (Proposed Rule) under the Investment Company Act of 1940, as well as certain form amendments, designed to simplify and modernize the regulatory framework governing ETFs and enhance information provided to investors about the costs of purchasing ETF shares (Proposal). Comments on the Proposal are due on or before 60 days after publication of the Proposing Release in the Federal Register. The Proposing Release has not yet been published in the Federal Register as of the date of this OnPoint.

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