U.S. REGULATOR REFORMS ETF RULES / THE FINANCIAL TIMES

US regulator reforms ETF rules

SEC aims to stimulate innovation and competition

Chris Flood


© Bloomberg


The Securities and Exchange Commission, the US financial regulator, has simplified the rules covering exchange traded funds with reforms that are expected to encourage more new participants to enter the fast-growing ETF industry.

The rule change is intended to encourage greater competition and innovation, leading to more choice for investors. It will also allow new ETFs to be launched more quickly as the SEC has swept away the existing cumbersome process where asset managers had to apply for so-called exemptive relief from existing US mutual fund rules for each ETF that they wished to launch.

“As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections,” said Jay Clayton, chairman of the SEC.

The regulator has issued more than 300 exemptive orders since 1992 allowing ETFs to operate. Since then, more than 2,000 ETFs have been launched in the US with combined assets of more than $3.3tn.

The Investment Company Institute, the trade body representing US asset managers, welcomed the change as “an important step” in the evolution of the ETF industry.

Paul Schott Stevens, the chief executive of ICI, said the reforms would “greatly benefit ETFs and their investors by lowering barriers to entry, fostering more innovation, and facilitating greater competition in the marketplace”.

Deborah Fuhr, co-founder of ETFGI, a London-based consultancy, said the reforms would create a more level playing field between ETFs and mutual funds.

“Applying for exemptive relief to launch a new ETF was often a lengthy process that could take several months. These reforms should reduce the cost of bringing new products to the market and improving choice for investors as we are seeing many innovations with new indices, custom baskets and ESG strategies that can all be embedded in an ETF wrapper,” said Ms Fuhr.