ETF Capital Markets Desk: Momentum Picks up for ETF Rule

    David Mann

    David MannHead of Capital Markets, Global Exchange-Traded Funds (ETFs), Franklin Templeton Investments

    David Mann, Franklin Templeton’s head of Capital Markets, Global Exchange-Traded Funds (ETFs), gives an update on the proposed “ETF Rule.” Will it finally come to fruition after a decade of debate?

    The long-anticipated “ETF Rule”—first proposed nearly 10 years ago—was officially published in the Securities and Exchange Commission (SEC) Federal Register on July 31, 2018.

    So now, ETF market participants are on the clock to submit any comment letters to the SEC by the end of September.

    The proposed ETF Rule (which will be part of the Investment Company Act of 1940) would permit ETFs that satisfy certain conditions to commence operations without the expense and delay of obtaining an exemptive order—much in the same way open-ended mutual funds are able to.

    Currently, an ETF issuer intending to bring a fund to market needed exemptive relief from the SEC, which was granted on a case-by-case basis. According to the SEC, “the proposed rule and form amendments are designed to create a consistent, transparent, and efficient regulatory framework for ETFs and to facilitate greater competition and innovation among ETFs.”1

    We see the proposed ETF Rule proposal as a positive step to help level the industry playing field, and one that has been squarely on our radar.

    I have written about this proposed rule several times in this forum, addressing various aspects of the ETF ecosystem. Here are some aspects I have written about on these pages:

    Treating index and active funds the same

    A Transparent Look at the ETF Menu

    Disclosing premium/discounts and bid/ask spreads and their impact on costs

    Premiums and Discounts

    What Investors Look for in an ETF: Bid/Ask Spread

    The Deceiving Penny

    The role of intraday net asset value (iNAV) in today’s trading of ETFs

    “Give iNav A Break”

    I’d give an honorable mention to the annual prediction posts in January 2017 and January 2018 that discussed the potential for an ETF Rule. It finally seems like it may be moving closer to fruition!

    Check back with us next month when we plan to share (and discuss) our comment letter to the SEC on the proposal.

    David Mann’s comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

    This information is intended for US residents only.

    To comment or post your question on this subject, follow us on Twitter @LibertyShares and on LinkedIn.


    1. Source: Securities and Exchange Commission, Federal Register, Vol. 83, No. 147, July 31, 2018.

    What are the Risks?

    All investments involve risks, including possible loss of principal. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.