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SEC Deals a Blow to Issuers’ Non-Transparent Active ETF Ambitions


The Securities and Exchange Commission rejected applications for non-transparent actively managed exchange traded funds by Precidian ETFs Trust and Spruce ETF Trust, a unit of BlackRock (BLK), dealing a blow to issuers looking to market ETFs that do not reveal their holdings on a daily basis.

In filings revealing the rejection of the BlackRock and Precidian funds, the SEC said it “believes that Applicants’ proposed ETFs do not meet the standard for exemptive relief under section 6c of the Investment Advisers Act of 1940”.

That section “allows the Commission to exempt any person, security, or transaction, or any class thereof, only “if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of [the Act].”Accordingly, the Commission preliminarily intends to deny the application.”

Earlier this year, the New York Stock Exchange’s parent company asked the SEC for permission to list non-transparent active ETFs, and Nasdaq’s parent company followed suit a few weeks later, seeking to list and trade Eaton Vance’s (EV) proposed products. [NYSE Pushes to List Nontransparent ETFs]

Currently, the SEC requires 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.

Some active managers that have entered the ETF space have dealt with the front-running issue with aplomb, indicating it is a non-starter for them. For example, the Calamos Focus Growth ETF (CFGE) , the first actively managed exchange traded fund from Calamos Investments, is the ETF offshoot of the firm’s Calamos Focus Growth Mutual Fund (CBCAX). CFGE launched in mid-July and is off to a solid start, having outperformed the S&P 500 since coming to market while attracting $23.4 million in assets. [Hidden Benefit With New Calamos ETF]

In addition to BlackRock, Eaton Vance and Precidian, State Street (STT) and T. Rowe Price (TROW) have also filed for active non-transparent active offerings.

Eaton Vance has proposed a new type of exchange traded managed funds, or ETMFs, 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 Files Amended Application for ETMFs Product]

Eaton Vance originally filed its exemptive relief for ETMFs in March 2013 and the application has been amended at least three times since then.