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SEC approves new Cboe in-kind transfer rule for options-based ETFs

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Innovator Capital Management, together with Cboe Global Markets, has created a path for options-based ETFs, including its flagship Buffer ETFs, to be more tax-efficient by taking advantage of in-kind transfers previously only available to traditional ETFs.

On 17 October, 2019 the SEC approved the new Cboe rule allowing the in-kind transfer of options in ETFs.
 
“We believe allowing investors in the Buffer ETFs to defer and compound their gains until they sell their shares is a game changer and a major development for the industry,” says Bruce Bond, CEO of Innovator Capital Management. “Having a built-in Buffer against losses and one-to-one participation on the upside, to a cap, is the Holy Grail of investing for many investors. Now, we offer that in a tax-deferred, liquid, and transparent structure, without credit risk. All that adds up to a very attractive alternative to traditional index investing, which provides no downside protection for investors.”
 
Commenting on the discussion leading to Rule 6.9 and their findings, the SEC stated: “The Commission believes that proposed Rule 6.9 is designed to protect investors and the public interest because it should facilitate in-kind creations and redemptions by options-based ETFs, which should lower taxable gains of shareholders of such ETFs. The Commission further believes that, by facilitating in-kind creations and redemptions by options-based ETFs, the proposed rule may also lower such funds’ transaction costs.” 
 
Innovator Defined Outcome ETFsTM seek to provide a defined exposure to a broad market index (such as the S&P 500, Nasdaq 100, Russell 2000, MSCI EAFE, and MSCI EM) where the downside buffer level, upside growth potential to a Cap, and Outcome Period are all known, prior to investing. The ETFs reset annually and can be held indefinitely. Innovator Defined Outcome ETFs, with over USD1.5 billion in AUM as of 30 October, 2019, are among the fastest-growing new categories of ETFs in the market today.

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