Dechert Paves Way For Improved ETF Regulations

April 27, 2017

“We had to work closely with management, tax, accounting and operational people to draft appropriate disclosure, and then negotiated with the SEC on what was appropriate,” Strauss noted. “I think that, ultimately, the structure we developed and the disclosure template we developed are going to become the standard for the products that launch subsequent to that target MLP investment.”

One challenge facing the industry now for novel products is that a sponsor can neither include a derivative in an index nor build in leverage in the index.

“So you face some challenges where people want to have some degree of derivative exposure because they can’t invest directly in the product,” said Strauss. “How do you accomplish that? We face that challenge with respect to a number of products: How do we gain exposure to assets in an index-based product?”

Shaping Regulation
The firm has helped to shape regulations throughout the years by regularly commenting on rules that impact the ETF space. Dechert also has built a good working relationship with the SEC, on both a formal and informal basis, Strauss notes.

“I think we have the type of relationship with the regulators where we’re often consulted on an informal basis [such as], ‘here’s an issue we’re addressing at the SEC; how would your clients respond to this? What is the market practice? What are issues associated with this?’” he said. “Or we may have issues from a particular client and we’ll talk to the SEC informally about them: ’Here’s the concern, how can we address this issue?’ We are an informal source of information for the SEC.”


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