International law firm Sullivan & Worcester LLP acted as fund counsel to Exchange Traded Managers Group (ETFMG) on the launch of the first dry bulk shipping exchange-traded fund, Breakwave Dry Bulk Shipping ETF (NYSE ARCA: BDRY) on March 22. Development of the fund is notable not only for being the first of its kind, but also for the lengthy process and rules change needed to achieve Securities and Exchange Commission and New York Stock Exchange [ARCA] (NYSE ARCA) approval. The fund was created to provide investors with a cost-effective and convenient way to gain exposure to daily changes in the price of ocean freight futures.
"From a regulatory standpoint, this fund required overcoming several significant hurdles," said John Hunt, a partner in Sullivan & Worcester's Investment Management Group. "First among the issues was structuring the product to comply with the New York Stock Exchange's rules for passively managed funds. Accordingly, we had to help our client develop a customized benchmark, which was based on three different futures contracts. Ultimately, after a lengthy review process and a rule change, the SEC and the New York Stock Exchange concluded that there was sufficient transparency and approved the client's proposed benchmark. We needed to work creatively to stay within the exchange's rules," Hunt said.
Eric Simanek, a Sullivan & Worcester associate who worked closely with ETFMG throughout development of the fund, also noted that as a first-of-its-kind product, the new ETF is unique from others that go by the same designation. "This fund [Breakwave Dry Bulk Shipping ETF] holds only futures contracts. It therefore is unlike most Investment Company Act ETFs, which hold securities, and unlike most non-Investment Company Act ETFs, which trade commodities such as gold or platinum."
Over the nearly year-long process, the Sullivan & Worcester team worked with ETFMG through all pertinent regulatory bodies, including the National Futures Association (NFA) and NYSE ARCA, the top U.S. exchange for the listing and trading of ETFs, and the SEC. The team consisted of Eric Simanek, John Hunt, Chris Curtis and Jonathan Wiggins.
