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BlackRock, Precidian Pull Active Non-Transparent ETF Applications


Less than a month after the Securities and Exchange Commission rejected their applications for non-transparent actively managed exchange traded fund BlackRock (BLK) and Precidian pulled those applications knowing it is unlikely the funds will be approved.

The companies notified the SEC of their decisions on Friday, according to Bloomberg.

On Oct. 22, the SEC rejected applications for non-transparent actively managed exchange traded funds by Precidian ETFs Trust and Spruce ETF Trust, a unit of BlackRock.

The SEC had previously required all ETFs, active and passive, to disclose holdings on a daily basis, which has dissuaded some active managers from launching an ETF and revealing their secret sauce to potential front runners. [SEC Rejects Two Active Non-Transparent Applications]

However, earlier this month, Eaton Vance’s (EV) Eaton Vance Asset Management gained SEC approval for exchange-traded managed funds (ETMFs), a type of exchange traded product that does not disclose its holdings on a daily basis as most passively managed ETFs do.

The sticking point for the SEC with the Precidian and BlackRock products was the proposed fashion in which those would have traded, if they had come to life. Eaton Vance’s ETMFs would allow for a scenario where market makers would buy or sell shares based on the so-called proxy price that represents the fund’s end-of-day net asset value or NAV-based trading. [Eaton Vance Wins Active Non-Transparent Approval]

The SEC has previously said that active non-transparent ETFs would not afford investors a similar economic experience to what they receive with traditional ETF. The Commission also highlighted the potential dangers non-transparent ETFs could face in times of market duress, saying “The lack of portfolio transparency or an adequate substitute for portfolio transparency coupled with a potential deficient back-up mechanism presents a significant risk that the market prices of ETFs may material deviate from the NAV per share of the ETF – particularly in times of market stress when the need for verifiable pricing information becomes more acute.”

There are actively managed equity-based ETFs that do disclose their holdings daily, including Calamos Focus Growth ETF (CFGE) and the new ValueShares U.S. Quantitative Value ETF (QVAL) .

ETF Trends editorial team contributed to this post.

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.