Nontransparent Active ETFs Coming

May 22, 2019

In the wake of Monday’s approval of a nontransparent active ETF structure, American Century Investments (ACI) has already filed for exemptive relief to launch such products using Precidian’s ActiveShares structure.

The initial funds mentioned in the 40-APP filing include the American Century Focused Large Cap Value ETF and the American Century Focused Dynamic Growth ETF.

Precidian’s proposed ActiveShares structure for nontransparent actively managed ETFs just received final approval from the SEC on Monday. It had received a conditional approval back in April that was dependent on whether or not an additional hearing was requested by any interested parties.

Trading Concerns Overcome
Originally there had been concerns that the structure could give rise to insider trading, and Precidian had worked to avert this possibility. This week the plan was officially deemed acceptable after no hearings were requested, the SEC document says.

Under the terms of the structure, the ETF does not have to disclose its holdings on a daily basis, allowing for active managers to engage in more traditional active management strategies without risking front-running by another party.

A representative of a fund’s authorized participant (AP) would act as an intermediary between the AP and the ETF. The AP would give creation/redemption instructions to its representative, and the ETF would confidentially disclose its holdings and securities to the representative, which is subject to a duty of nondisclosure, according to the SEC document.

From there, the AP representative can carry out the transaction on behalf of the AP.

In addition to ACI’s filing, Legg Mason holds a minority stake in Precidian and, according to a press release, is working with the firm to launch its own products using the ActiveShares structure.

Other firms that have licensed the ActiveShares structure include J.P. Morgan Asset Management, BlackRock, Capital Research, Royce and Nationwide, according to a press release.

Contact Heather Bell at [email protected]

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