“Although the Division continues its ongoing review of the use of derivatives by funds, Division staff will no longer defer consideration of exemptive requests under the Investment Company Act relating to actively-managed ETFs that make use of derivatives,” Champ said in speech.
However, the exemptive requests must address the SEC’s two main concerns about derivatives. The agency said the ETF’s board periodically will review and approve the ETF’s use of derivatives and how the ETF’s 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.
“Because of concerns regarding leveraged ETFs, however, we continue not to support new exemptive relief for such ETFs,” Champ said in the speech.
Full disclosure: Tom Lydon’s clients own BOND.