Ropes & Gray’s ETF Attorneys Widely Cited on New SEC ETF Rules

In The News
September 26, 2019

On Sept. 26, the SEC revealed new rules to modernize how exchange-traded funds are brought to the market and are regulated. The Rules have been decades in the making and have been eagerly anticipated by the ETF industry.

The SEC’s new rule “levels the playing field,” said asset management partner Brian McCabe in an Oct. 1 Compliance Week article titled “SEC modernizes rules on exchange-traded funds,” adding that Rule 6c-11 allows the majority of ETFs to operate under the Investment Company Act of 1940, provided that certain conditions, including daily portfolio transparency and Website disclosures.

In a Sept. 26 piece by ETF Stream titled “SEC makes changes to ETF regulation,” asset management partner Jeremy Smith, stated that “The final rule does not contain any new requirements relative to what was proposed in June 2018, and certain core provisions, such as custom basket requirements, uniform treatment of index and actively managed ETFs, and rescission of existing exemptive relief held by those eligible to rely on the rule, are unchanged from what was proposed.”

In a Sept. 26 article by Barron’s titled “Will the SEC’s New ETF Rule Benefit Investors?,” asset management counsel Ed Baer outlined that the biggest sticking point with the previous regulation—or lack thereof—related to whether an ETF can use custom baskets. ETFs are able to minimize trading costs and improve tax efficiency creating and redeeming shares through authorized participants. Typically, they do this with a basket of securities that mimics the rest of the portfolio, but that isn’t always feasible, said Mr. Baer in the article.

Comments from the team were also included in a Sept. 26 article by Law360 titled “Busy SEC Eases ETF Rules, Lets More Cos. 'Test The Waters,'” and in an Oct. 3 article published by Fund Directions titled “Newly Adopted ETF Rule Positions Boards as Overseers of Custom Basket Policies.”

A summary and analysis of the Final ETF Rule can be accessed here.