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SEC proposes streamlining approval process for US ETFs


The Securities and Exchange Commission has voted to propose two new rules under the Investment Company Act to allow exchange-traded funds to operate without the need to obtain individual e

The Securities and Exchange Commission has voted to propose two new rules under the Investment Company Act to allow exchange-traded funds to operate without the need to obtain individual exemption orders from the US financial regulator.

The SEC has also proposed amendments to disclosure Form N-1A to include additional information for ETF investors who purchase shares in the secondary markets.

‘The proposed rules would increase investor choice by eliminating a barrier to entry for new participants in this fast-growing market, while preserving investor protections,’ says Andrew J. Donohue, director of the SEC’s investment management division.

‘Permitting most ETFs to come directly to market without the cost and delay of obtaining an exemptive order would also allow staff to focus on more novel and difficult requests.’

The commission’s Proposed Rule 6c-11 would provide several exemptions from the Investment Company Act to permit ETFs to form and operate without the need to obtain individual exemptive relief from the SEC. The rule would codify most of the exemptions previously granted by the commission to index-based ETFs and, pursuant to several recently-issued exemptive orders, to fully transparent actively-managed ETFs.

Proposed Rule 12d1-4 would allow investment companies to make larger investments in ETFs than are currently permitted under the Investment Company Act, which limits one investment company to acquiring no more than 3 percent of another investment company’s shares.

The exemptions in the proposed rule would be subject to conditions designed to address the historical abuses associated with ‘pyramiding’ schemes that often occurred with fund of funds investment.

The proposed amendments to Form N-1A, which open-end funds use to register under the Investment Company Act and offer their securities under the Securities Act of 1933, would accommodate the use of the form by ETFs. The proposed amendments are designed to provide key information to investors who purchase ETF shares in secondary market transactions, as do most ETF investors.

The comment period for the proposal will end 60 days from the date of publication of the proposed rule in the Federal Register.

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