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The Securities and Exchange Commission (SEC) unanimously approved a new rule that will help modernize the regulatory framework for exchange traded funds (ETFs). The “ETF Rule” is an important milestone for our industry and is a positive development for the ETF ecosystem. BlackRock commends the SEC for its action.
A summary of BlackRock’s reactions to certain key provisions of the final ETF Rule follows:
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Lower barriers to entry will help support future ETF growth.
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Wider use of “custom baskets” will benefit investors and the ETF ecosystem.
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Enhanced data disclosures will increase ETF market transparency.
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Improvements are still needed in ETP classifications.
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On Sept. 26, 2019, the SEC approved a new rule under the Investment Company Act of 1940 (the ’40 Act) that will allow ETFs that satisfy certain conditions to operate without first obtaining individual “exemptive relief.”
Historically ETF issuers were required to obtain exemptive relief from provisions of the ’40 Act for ETFs to operate as investment companies. More than 300 orders were issued since 1992. The SEC estimated that the median processing time for an exemptive order was historically about 221 days, and that the typical cost per application was about $100,000.
The ETF Rule applies to most ETFs organized under the ’40 Act. It does not apply to ETFs structured as Unit Investment Trusts (UITs), ETFs structured as a share class of a mutual fund, levered and inverse ETPs, or non-transparent actively managed ETFs.
BlackRock submitted a detailed comment letter in response to the proposed Rule 6c-11 in September 2018.