We caught up with John McGuire, partner at Morgan, Lewis & Bockius LLP, and he weighed in with his thoughts about the changes.
The SEC is making these changes largely because of demand from ETF sponsors to speed up the process and as the funds become increasingly popular. Typically, the ETF approval process involved staff at the SEC subjecting a fund to a review, resulting in approvals on a case-by-case basis, report Kara Scannell and Diya Gullapalli for the Wall Street Journal. The new rule would eliminate the need to obtain specific relief.
"The ultimate short cut is to adopt a rule that permits ETFs without the need for obtaining and SEC exemptive order," McGuire says. "I do think that the success of ETFs has led to a large backlog of exemptive orders."
The changes don’t necessarily mean that ETFs won’t go through less scrutiny before they land in the marketplace. But McGuire says that "ETF sponsors won’t have to go through this exemptive process, but there will still be scrutiny as the ETFs go through the registration process."
The changes aren’t in place yet, though, and any changes may not be immediately apparent. After the SEC makes its proposal, there will be a period for public comment. The Commission will then analyze that input and make a decision based on that. "The new rule will likely impact those sponsors seeking to get in the ETF business in 2009 or later," says McGuire. It could also affect providers already in the business who are looking to add to their ETF lineups.
If the new rules go into effect, McGuire says it could free up staff to focus on new products that don’t fit the current models, and it will also make it easier for fund groups to enter the ETF business. "Either of these things could lead to more, and more innovative, ETFs."
The meeting at which the SEC will make its recommendations for the new rules will take place next Tuesday.