The Securities and Exchange Commission lifted a ban on derivatives in actively managed exchange traded funds a little over a year now, but the regulatory body has not made up its mind on how the change should be implemented, pushing back approval for some active products.
The SEC is requesting further details on derivatives or illiquid securities, along with how portfolio securities will be valued, reports Jackie Noblett for Ignites. [Active ETFs Stuck in Limbo at SEC]
Among the more prominent active ETFs waiting for regulatory approval, the PIMCO Total Return ETF (NYSEArca: BOND) has been trading without the use of derivatives, which are utilized in PIMCO’s flagship Total Return fund. However, the SEC is looking over a proposal and will make a decision by February 24.
IndexIQ, State Street Global Advisors and Van Eck are among firms that have been asked for additional information on derivatives in their planned active ETF products.
“The frustrating part on this one is we really don’t know what they’re looking for and why they’re looking for it,” John McGuire, partner at Bingham, said in reference to the questions of valuation procedures,
ETF providers need to petition the SEC to allow changes in standing listing rules for a given ETF, jumping through the 19b-4 process, which can take up to a year or more.
“The reality is they’re trying to get their arms around derivatives… and they’re trying to take a measured approach in allowing products to come to market,” one ETF executive, who requested that his name not be used, said in the FT article. “There’s just a lot of extra effort in reviewing these products.”
The SEC lifted its moratorium on derivatives usage in active ETFs in December 2012. Regulators, though, have kept the freeze on applications for leveraged and inverse ETFs. [SEC to Lift Freeze on Active ETFs That Use Derivatives]
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.