The new rule would permit ETFs to operate without the need to obtain individual exemptive orders from the US Securities and Exchange Commission.
At an open meeting on Thursday, June 28, the US Securities and Exchange Commission (SEC) voted unanimously to propose Rule 6c-11 (Rule) under the Investment Company Act of 1940 (1940 Act), as well as amendments to Forms N-1A, N-8B-2, and N-CEN.
As we continue to review the proposal, we wanted to share some of its highlights:
The Rule would only be available to ETFs organized as open-end funds. ETFs organized as unit investment trusts (UITs), ETFs structured as a share class of a multi-class fund, and leveraged or inverse ETFs would not be able to rely on the Rule and instead would continue to operate under their existing exemptive orders. Existing leveraged ETFs and ETFs organized as UITs would, however, be subject to the proposed amendments to Forms N-1A and N-8B-2, which are designed to provide investors with additional ETF-specific information, including information about costs specific to ETFs (collectively, Form Amendments).
Existing Exemptive Orders
The Rule would rescind exemptive relief previously granted to ETFs eligible to rely on the Rule.
Index vs. Active
Although the Rule would provide exemptions for both index-based ETFs and actively managed ETFs, it would not establish different requirements based on whether an ETF’s investment objective is to seek returns that correspond to the returns of an index.
To rely on the Rule, an ETF would have to satisfy, among others, the following conditions:
ETFs as “Redeemable Securities”
The SEC believes that the rules under the Securities Exchange Act of 1934 (Exchange Act) that apply to redeemable securities issued by an open-end fund would apply to ETFs relying on the Rule. Thus, ETFs relying on the Rule would become eligible for the “redeemable securities” exceptions in Rules 101(c)(4) and 102(d)(4) of Regulation M and Rule 10b-17(c) under the Exchange Act in connection with secondary market transactions in ETF shares and the creation or redemption of creation units. Similarly, the SEC would view ETFs relying on the Rule as within the “registered open-end investment company” exemption in Rule 11d1-2 under the Exchange Act.
Elimination of IIV Requirement
The Rule would not require the dissemination of an ETF’s intraday indicative value (or IIV) as a condition. We note, however, that exchange listing standards currently require such dissemination.
Comments on the Rule will be due sometime in early September, or 60 days after the Rule is published in the Federal Register. If you would like assistance with submitting comments to the SEC, please contact us.
We are continuing to review the contents of the proposal and expect to issue further analysis on the Rule in the near future.
 When available, a recording of the open meeting will be available here.