SEC Deals a Blow to issuers’ Non-Transparent Active ETF Ambitions

The Securities and Exchange Commission rejected applications for non-transparent actively managed exchange traded funds by Precidian ETFs Trust and Spruce ETF Trust, a unit of BlackRock (NYSE: BLK), dealing a blow to issuers looking to market ETFs that do not reveal their holdings on a daily basis.

In filings revealing the rejection of the BlackRock and Precidian funds, the SEC said it “believes that Applicants’ proposed ETFs do not meet the standard for exemptive relief under section 6c of the Investment Advisers Act of 1940”.

That section “allows the Commission to exempt any person, security, or transaction, or any class thereof, only “if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of [the Act].”Accordingly, the Commission preliminarily intends to deny the application.”

Earlier this year, the New York Stock Exchange’s parent company asked the SEC for permission to list non-transparent active ETFs, and Nasdaq’s parent company followed suit a few weeks later, seeking to list and trade Eaton Vance’s (NYSE: EV) proposed products. [NYSE Pushes to List Nontransparent ETFs]

Currently, the SEC requires all ETFs, active and passive, to disclose holdings on a daily basis, which has dissuaded some active managers from launching an ETF and revealing their secret sauce to potential front runners.