SEC Requests Feedback on Exchange-Traded Funds

The SEC has released a request for comment on ways to increase innovation related to exchange-traded funds (ETFs), which the document defines as “a type of exchange-traded product . . . that possess[es] characteristics of both open-end funds . . . , which issue redeemable securities, and closed-end funds, which may issue shares that trade at market-determined prices on a national securities exchange and are not redeemable.” To operate, ETFs must qualify for an exemption granted by the SEC from certain provisions under the Investment Company Act of 1940 (the ”Act”) since such funds are not specifically addressed in the Act. The market for ETFs has increased significantly since December 2019, when Rule 6c-11 of the Act became effective. Rule 6c-11 permits “ETFs that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order.”

The request for comment is specifically targeted toward ETFs that are “seeking to invest in innovative asset classes or engage in novel investment strategies.” The SEC is hoping that the feedback it gathers will help further increase ETF-related innovation while simultaneously fostering its mission of “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

For more information, see the press release on the SEC’s Web site.