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Regulation

SEC proposes streamlined approval process for ETFs

The Securities and Exchange Commission voted Thursday to propose a rule that would make it simpler for exchange-traded funds to begin operating.

The new rule would establish a consistent framework for the vast majority of ETFs, which would then allow those ETFs to operate within the scope of the Investment Company Act of 1940 and come directly to market without obtaining an exemptive order, according to the SEC. Since 1992, the SEC has issued more than 300 exemptive orders on this issue.

ETFs that provide daily portfolio updates online; disclose information, including historical data regarding premiums and discounts and bid-ask spread information; and adopt written policies showing how its use of "custom baskets" are in the best interest of the ETF and its shareholders would be in compliance with the proposed rule. Under the current rules, these ETFs would need to get an exemptive order.

In a statement, SEC Chairman Jay Clayton called the decision 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."

The Investment Company Institute commended the SEC for its move Thursday. "Investors — and the asset managers who serve them — deserve a more uniform ETF regulatory framework," said Paul Schott Stevens, ICI president and CEO, in a statement. "The time is right to codify these exemptive orders into a single rule."

SEC Commissioner Kara M. Stein said in a prepared statement at Thursday's meeting that although there is still more work to be done on the ETF matter, there is a need for "overarching and consistent ETF regulation and this is an important step in the right direction."

The SEC will seek public comment on the proposal for 60 days.