SEC Requiring ETF Providers to Disclose Wall Street Market Makers

In an attempt to provide better clarity on the inner workings of the exchange traded fund industry, regulators are requiring fund companies to disclose the market makers that help improve efficiency in ETF trades in the secondary market.

The Securities and Exchange Commission approved a rule to include requirements for ETFs to report which banks are the most active middlemen in the $2.4 trillion market, reflecting concerns behind large institutional orders and the impact on ETF prices for everyday investors, reports Dave Michaels for the Wall Street Journal.

“They are being very honest about it – they don’t understand how ETFs work and how they are impacted by stressed markets,” John McGuire, a partner at Morgan, Lewis & Bockius LLP whose clients include many ETF providers, told the WSJ.

SEE MORE: SEC is Putting the ETF Industry Under the Microscope

The new rule will come into effect starting 2018. The changes are part of the broad SEC review of ETF trading and complexity that regulators have been conducting since 2011.

The new regulations may also be seen as a direct response to the so-called mini flash crash on August 24, 2015 that triggered trade halts and made it harder for ETF shares to recover.