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Active ETFs Stuck in Limbo at SEC


While the Securities and Exchange Commission has lifted its ban on derivatives use in actively managed exchange traded funds, we may not see a deluge of new active ETFs strategies anytime soon.

The SEC’s Division of Trading and Markets has made sponsors and exchanges wait six to 18 months and even longer in some cases to approve the 19b-4 application – a requirement to gain approval to list an actively managed ETF, reports Yakob Peterseil for Risk.

“Any provider that does active ETFs is well aware of the lengthy process you have to overcome with the Division of Trading and Markets,” Jeremy Senderowicz, counsel at law firm Dechert, said in the article.

Senderowicz points out that regular applications have to go through “nine to 12 months” of SEC review.

“If you want to use more than a de minimis amount of OTC derivatives, start adding time on to that,” Senderowicz added.

The SEC lifted the moratorium on derivatives in active ETFs last December. The ban began in March 2010 and left some applications in a holding pattern for two years or more as they waited for exemptive relief. [Several Fund Firms Eyeing Active ETFs]

“OTC derivatives are very hard to monitor because there is no centralised exchange to get the information from – that’s where actively managed ETFs can get held up,” Richard Keary, principal and founder of Global ETF Advisors, said in the article. “The SEC likely wants to make sure the exchange can monitor all the components of this product to prevent disruptions. It’s a legitimate regulatory concern.”

According to ETFGI, active ETFs and ETPs make up less than 1% of the market globally.

For more information on active funds, visit our actively managed ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.