Let The Commenting Begin


The SEC today announced the long-awaited issuance of its concept release on actively managed exchange-traded funds (ETFs). Actively-managed ETFs increasingly threaten to invade the realm of ETFs, a space presently occupied only by index funds. The AMEX didn't stop calling ETFs "Index Shares" for nothing.

Actively-manged ETFs of a sort have already been launched in Germany, where a number of active funds trade on the Deutsche Boerse. The legitimacy of those ETFs has been disputed, however. Any ETF that may be launch in the U.S. is likely to at the least have significantly greater transparency and creation and redemption of shares. Those same features keep trading values close to underlying Net Asset Values and therefore keep the SEC relatively happy.

Pencils are sure to be flying as ETF wonks argue with SEC hacks over things like premiums and discounts, transparency, liquidity and cost. You can be part of the fun, as the SEC is now actively soliciting comment on the topic of actively-managed ETFs.

Here is the SEC press release in full:


Washington, DC, November 7, 2001 - The Securities and Exchange Commission today issued a concept release seeking public comment on actively managed exchange-traded funds. Among other issues, the release requests comment on the potential structure and operation of actively managed exchange-traded funds, the benefits and uses of such products, and potential regulatory issues.

Citing the goal of protecting investors without stifling innovation, the Commission also asked the SEC staff to explore the feasibility of a pilot program that would permit the introduction of actively managed ETFs.

An exchange-traded fund, or "ETF," is a registered investment company that is listed on a national securities exchange and trades at market prices in the secondary market. All existing ETFs seek to track the performance of various domestic and foreign equity market indices by replicating or sampling the securities of those indices.

An actively managed ETF would not seek to track the return of a particular index by replicating or sampling index securities. Instead, the investment adviser to an actively managed ETF could select securities consistent with the investment objectives and policies of the ETF without reference to the composition of an index. This type of ETF does not currently exist.

The public will have sixty days to comment on the concept release. However, the Commission directed the staff to continue to work with applicants who have pending applications to introduce new exchange traded products, including exchange traded products with actively managed portfolios, during this period.