‘ETF Rule’ Decision Postponed

September 24, 2019

[Editor’s Note: This is an update to a prior story noting the vote would happen Wednesday.]

The Securities and Exchange Commission was expected to vote on the proposed “ETF Rule” this Wednesday. But late Tuesday, around 5 p.m. ET, regulators canceled the open meeting when a vote on this rule was to take place, among other business.

The SEC did not provide a reason for the cancellation, or an alternative date. Word on the street Wednesday morning was that the decision on the “ETF Rule” would come down on paper, outside of an open meeting, and an announcement could still come this week. The office of the Secretary couldn’t confirm that timeline, other than to say “keep an eye on our website.” 

The much-awaited piece of regulation—possibly the most important since Dodd-Frank—would impact all parts of the ETF ecosystem, from product launch to trading to disclosures, possibly clearing the path for more innovation, better efficiency and lower costs across the board.

Removing ‘Exemptive Relief’ Hurdle

Among its key provisions, the proposed rule would make it easier and cheaper for ETF issuers to bring new strategies to market.

ETFs structured as open-ended funds would no longer need to obtain the time-consuming and costly “exemptive relief” from sections of the Investment Company Act of 1940.

Exemptive relief applications, currently evaluated on a case-by-case basis, can take up to six months to process, and cost up to $25,000 in filing costs. And the more complex the proposed ETF is, the more difficult this process can be.

Custom Basket For All

The “ETF Rule” should also make custom creation/redemption baskets available to all ETFs—an advantage only some issuers enjoy, and one that can impact the tax efficiency of a fund. (You can read a detailed outline of the proposed changes here.)

“The ETF rule is the single most important regulatory action being taken on ETFs since 1993,” ETF.com Managing Director Dave Nadig said. “The currently proposed rule is very clean: It levels the playing field on custom baskets, and provides clarity on a variety of issues like how to report transaction costs.”

“Overall, this is great for investors, and good for the ETF industry,” he added, “particularly smaller issuers who haven't been able to use custom baskets to manage their portfolios optimally.”

Slam Dunk?

Industry experts expect the SEC vote to be a slam dunk approval for the “ETF Rule.”

While some provisions may be amended—Nadig himself submitted a comprehensive comment letter outlining his suggestions to the proposed rule—a failure to pass this regulation would be surprising.

It remains to be seen when a vote takes place. We will update this story as soon as more information is available.

For More on “ETF Rule,” see:

The ETF Rule: ETF.com's Comment Letter

SEC Backs Major ETF Rule Change

SEC Considering Major ETF Rule Change

 

Contact Cinthia Murphy at [email protected]

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