SEC Streamlines ETF Process But Presents Risks

New ETF ideas may find it easier to wade through the Securities and Exchange Commission’s red tape, but some are concerned about risks associated under new regulatory rules.

The SEC is readying a proposal that will reduce the time needed to approve ETFs and end inconsistencies that have created an uneven playing field. However, some are worried that fund managers may admit substandard securities into existing ETFs for reasons that have nothing to do with what’s best for the underlying portfolio, Bloomberg reports.

Overall, ETF providers are united in their support of this new flexible basket scheme from the SEC. More recent issuers have been forced to a pro-rata slice of their portfolio or are required to only rely on securities they already own when building out an underlying portfolio for their ETFs, but the new rules may allow both new and old ETF issuers to be more flexible in their underlying securities choices.

“The world’s largest asset managers recognize the downside of something like that is far bigger than the upside, but what about a startup?,” Mo Haghbin, head of product at OppenheimerFunds Inc.’s beta solutions business, told Bloomberg. “There’s always a risk that someone does the wrong thing so, ‘How do you mitigate that risk?’ is the right way of thinking about it.”

Related: ETF Liquidity is Sparking – Here’s Why…