[Editor's note: In our May ETF Report, "Behind The Curtain," we profile four firms, which you may or may not have heard of, that have deep roots in the industry, sometimes through multiple business lines. These are the lawyers, the index providers, the custodians, the liquidity providers and the market makers that keep the gears of the ETF industry spinning. See "The Guiding-Hand Firm For ETF Issuers" and "Doing The Day-To-Day Heavy Lifting," "The Biggest Firm You Still Haven't Heard Of."]
In the early days of the exchange-traded fund industry, every time an ETF sponsor wanted to launch a new fund, the firm had to get exemptive relief from the Securities and Exchange Commission.
“To initially launch products, it was a time-consuming process. We had extensive interaction with regulators getting exemptive relief, getting exchange listings approved, getting no-action relief,” said Stuart Strauss, a partner at law firm Dechert LLP.
The SEC now standardizes much of this regulatory relief, making it easier to launch new ETFs, says Jeremy Senderowicz, partner at Dechert.
A lot of that’s because of Dechert’s work on the regulatory side for the ETF industry. The firm’s been involved in the ETF industry since 2005, while the team of Strauss, Senderowicz and Allison Fumai, another partner, has worked at Dechert since 2009. During that time, the firm has become one of the largest global specialist law firms.
Clients Of Increasing Size
Its practice evolved from representing smaller entrepreneurial organizations wanting to enter the ETF space to the large mutual fund organizations that want to expand their operations to be part of the ETF ecosystem.
Dechert helps clients who want to launch an ETF product—from start to finish, Strauss and Senderowicz say, with such aspects as discussing investment strategies, suitability, whether the product can be created in a manner consistent with the limitations under the Investment Company Act, and other issues.
Because so many mutual fund sponsors are entering the ETF business, much of the advice Dechert gives now focuses on the distinctions between the two types of business, such as regulatory differences and differences in service-provider relationships, Senderowicz notes.
“A lot of that’s informed by how we’ve seen the industry evolve over the past decade. … What we continually emphasize is that the way the ETFs are distributed is dramatically different than mutual funds,” he said. “[They] need to understand that at the outset, and develop a strategy and not necessarily assume that the extensive distribution network they have in place for distributing their mutual fund shares is automatically extended and effective to ETFs.”