SEC Allows PIMCO to Trade Derviatives in BOND ETF

PIMCO’s exchange traded fund adaptation of the flagship Total Return Fund could soon better mirror its mutual fund counterpart as the Securities and Exchange Commission gives the go ahead for derivatives usage.

According to a recent filing, the SEC granted approval of proposed rule changes to modify the PIMCO Total Return ETF (NYSEArca: BOND), an actively managed ETF version of PTTRX, to include derivative instruments.

The SEC had previously issued a blanket ban on derivatives in new ETF filings due to concerns over risk exposure. However, the regulatory body lifted the freeze on active ETFs but remains wary about approving other applications from other providers. [SEC Delays Approvals for Active ETFs with Derivatives]

PIMCO has maintained that derivatives “can be an economically attractive substitute for an underlying physical security that the [ETF] would otherwise purchase” by offering lower transaction costs or better valuations, reports Jackie Noblett for Ignites.

However, some wonder if PIMCO even needs or will use derivatives in the ETF

“The absence of the ability to use all of the tools in PIMCO’s toolbox hasn’t hurt this year,” Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ, said in the article.