SEC Division of Trading and Markets Discusses Issues with Exchange-Traded Products


In a February 22 speech at The SEC Speaks in 2013, Associate Director of the Division of Trading and Markets of the Securities and Exchange Commission Heather Seidel discussed the evolution of exchange-traded products (ETPs) as seen from the perspective of her office’s review of stock exchange applications for ETP listing rules under Rule 19b-4 of the Securities Exchange Act of 1934. Ms. Seidel has seen an increase in ETP listing rule applications over the last year with significant growth in rules sought for actively managed exchange-traded funds (ETFs), including such ETFs utilizing fixed income securities. She also noted an increased level of complexity of ETPs that seek inverse and leveraged performance of various asset classes as well as of exchange-traded notes (ETNs).

In ETP listing rule applications, Ms. Seidel stated that the Division staff were seeking clarity as to what the ETP is, its structure, investment objective and compliance with listing standards. For ETPs that are not investment companies registered under the Investment Company Act of 1940, Ms. Seidel noted that the staff is particularly concerned with the transparency of what the ETP is tracking, the transparency of its investment objective and how the arbitrage mechanism, which reduces premiums or discounts of ETP share trading prices against the ETP’s net asset value, will work for the ETP.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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