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Exchanges file rules with U.S. SEC aimed at spurring ETF market

By John McCrank

By John McCrank

NEW YORK, Nov 20 (Reuters) - U.S. stock exchange operators have filed plans with the U.S. Securities and Exchange Commission aimed at lowering the cost and speeding up the process of launching new exchange-traded funds, which could give a boost to the more-than $3 trillion market.

Cboe Global Markets, Nasdaq Inc and Intercontinental Exchange Inc's NYSE Arca all submitted filings with the SEC in the past week that if approved would reduce the barriers to launching new ETFs.

The filings come after the SEC voted in September to harmonize its own rules on ETFs, which in the first quarter of 2019 made up more than 18% of U.S. equity trading by share volume and more than 27% by dollar volume.

Lowering the barriers to entry for new ETFs that fall within an open-fund structure will spur competition by enabling issuers to bring more ETFs to market in a more timely fashion, allowing them to better react to market conditions, said Laura Morrison, Cboe's global head of listings.

"There are a lot of very large asset managers who have not issued ETFs in the past who are now speaking to us about it," she said in an interview.

The SEC's new rule, which applies to the vast majority of ETFs that currently exist, replaces more than 300 exemptive orders issued by the SEC since 1992 that ETF companies have said inadvertently gave some firms a competitive advantage.

"This decision encourages innovation in the ETF industry and fosters a more compelling marketplace for launching and trading ETFs," said Douglas Yones, NYSE's head of exchange traded products.

Between January 2007 and early April 2019, the median processing time when applying for an exemptive order to permit an ETF to operate as an investment company under the Investment Company Act was 213 days, and the cost was around $100,000, the SEC said in September.

The SEC's ETF rule eliminates the exemptive relief requirement for most of the funds. The rule does not apply to unit investment trust ETFs, leveraged and inverse ETFs, or non-transparent active ETFs.

The exchanges have also proposed eliminating the quarterly reports they file to the SEC highlighting issues with the funds. (Reporting by John McCrank; Editing by Cynthia Osterman)