Update on Lifting of SEC Moratorium on Active ETF Use of Derivatives

Dechert LLP

The staff of the U.S. Securities and Exchange Commission (the “SEC”) released no action relief (the “Letter”) addressed to recipients of 18 prior orders (the “Prior Orders”) granting exemptive relief to launch actively-managed exchange-traded funds (“ETFs”) on December 7, 2012. The Prior Orders were issued during the SEC’s moratorium on actively-managed ETFs’ use of derivatives, and thus required actively-managed ETFs offered in reliance thereon to refrain from any investments in options contracts, futures contracts or swap agreements. The Letter allows these ETFs to invest in such derivatives not withstanding the contrary representations contained in their exemptive applications.

The Letter thus confirms that the SEC has lifted its moratorium on the use of derivatives by active ETFs offered pursuant to the Prior Orders, and not just with respect to active ETFs offered pursuant to new exemptive applications. In his speech announcing the lifting of the moratorium, the Director of the SEC’s Division of Investment Management, Norm Champ, had only specified that the moratorium was being lifted with respect to the SEC staff’s consideration of new exemptive applications. As confirmed in the Letter, though, the SEC has indeed lifted the moratorium with respect to all actively-managed ETFs (other than new applications for leveraged and inverse ETFs, as stated by Mr. Champ).

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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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