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April 2018

BlackRock supports discussion about the future of ETF regulation

Widespread adoption of exchange traded funds is among the most remarkable trends in financial markets over the past decade.

Millions of Americans now use diversified, low-cost ETFs to help grow the investments that can help them meet goals such as paying college tuition and saving for retirement.

As ETFs become integral parts of global capital markets, BlackRock encourages discussion about how best to ensure that ETFs work for all investors. Regulation is a critical means for fulfilling a robust future.

In this context, we welcome a recent Financial Times opinion column authored by Henry Hu, an academic and former regulator, which emphasized the need for a unified regulatory framework governing the ETF marketplace and a clear legal definition for what constitutes an ETF.

BlackRock supports clear and consistent standards to regulate and approve ETFs. We look forward to reviewing the details of the Securities and Exchange Commission’s "ETF Rule" proposal later this year.

ETFs have been embraced in part because they generally offer lower costs and greater transparency than traditional mutual funds. Even so, ETFs continue to operate in a regulatory regime that was designed nearly eight decades ago to oversee mutual funds.

We also agree that any ETF Rule should include a standardized nomenclature that defines "ETF." BlackRock advocates a convention for classifying exchange traded products, one that makes it intuitive for investors to distinguish products that are more complicated than the standard ETFs that make up the majority of the marketplace. Better labeling can help simplify the investment landscape and convey to investors what they are buying.

BlackRock believes that ETFs have proven themselves to be dependable tools for price discovery in times of market duress. Investors can benefit from the flexibility to trade a broad range of assets in real time, in the same manner as U.S. equities. BlackRock is an advocate for better U.S. regulations that help ETFs deliver reliable pricing and data in volatile markets.

Some of the most pressing regulatory needs aren’t about ETFs themselves--they are about bolstering equity markets and enabling an efficient arbitrage process that keeps market prices closely aligned with the values an ETF’s underlying securities. BlackRock has long recommended enhancements to the U.S. equity trading ecosystem.

At the same time, BlackRock promotes greater understanding of the modern equity market architecture. Investors must be equipped to navigate the current market environment, including through the appropriate use of order types to ensure quality trade executions.