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Wednesday, November 08, 2017

For ETF Creation Streamlining, Will the Third Time Be the Charm?

News summary by MFWire's editors

When it comes to the SEC streamlining its process for giving its blessing to new ETF players, perhaps the third time will be the charm.

The regulatory agency's staff, this time under the direction of new SEC Chairman Jay Clayton, is again working on streamlining the ETF exemptive relief application process, Bloomberg reports. Dalia Blass, the SEC veteran and ETF specialist who Clayton brought back to the SEC in September to lead its investment management unit, is reportedly spearheading the new effort.

Since ETFs inherently bend or break some of the pieces of the '40 Act that governs traditional mutual funds, any new player looking to start launching ETFs (or any existing ETF shop looking to launch a kind of ETFs that differs in kind from what it already offers) needs to apply for exemptive relief from the SEC, i.e. ask for the necessary exemptions from the Investment Company Act of 1940. And they need that relief before they start the traditional mutual fund creation filing process for creating the specific new ETFs.

This exemptive relief streamlining song may sound familiar to many fundsters on the ETF side of the business. Back in 2007 and 2008, Buddy Donohue (who then held the role now held by Blass) worked on a similar proposal around streamlining the ETF exemptive relief process, as fundsters complained about the inscrutability of the process. Yet the proposal never went through, a fizzling Bloomberg blames on the 2008-2009 financial crisis.

In 2013, a new investment management division chief, Norm Champ, began trumpeting a similar idea, specifically to help firms looking for relief for ETFs that are similar to already-approved ETFs.

It's not clear how the new proposal differs from the 2008 and 2013 versions, if at all. Blass says the proposal is moving fast, one source tells Bloomberg, and that Clayton made a point to emphasize ETF regulation in the SEC's regulatory agenda outline submitted privately to the Trump administration in October. Yet Bloomberg muses that, given how much the ETF industry has changed and grown in the past decade, the SEC might need to go through a full, multi-month rulemaking process to properly tweak the proposal. So don't expect speedier exemptive relief just yet.

Some industry-friendly SEC watchers are already smiling about the news. Paul Atkins, head of Patomak Global Partners and former SEC commissioner, tells Bloomberg that "it's about time" the SEC addressed this problem. Champ, now an industry lawyer working at Kirkland & Ellis, says the SEC's move would "save significant expense for investors."  

Edited by: Neil Anderson, Managing Editor

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