Actively Managed ETFs

The SEC’s recent decision to lift the nearly three-year moratorium on some new exchange traded funds that use derivatives should speed the rise of actively managed ETFs.

In a speech earlier this month, Norm Champ, director of the SEC’s investment management division, said the agency will no longer defer consideration of requests by fund managers to launch active ETFs that invest in derivatives.

The move comes with two conditions. The SEC said the ETF’s board periodically will review and approve the fund’s use of derivatives and how the investment adviser assesses and manages risk with respect to the ETF’s use of derivatives. Also, the regulator wants the ETF’s disclosure of its use of derivatives in its offering documents and periodic reports to be consistent with relevant Commission and staff guidance.

Importantly, the regulator is continuing its policy of not considering inverse and leveraged ETFs that use derivatives. [SEC to Lift Freeze on Active ETFs That Use Derivatives]