MarketsMuse post courtesy of extract from report by Barron’s Johanna Bennet..our Editorial team leads in with “How could anyone think that an ETF (actively-managed or passive) that doesn’t disclose the underlying components to its investors could pass muster with regulators, no less investors?
The SEC has denied requests that would have allowed non-transparent active ETFs to hit the U.S. market.
In decisions issued earlier today, the regulatory agency denied applications by Precidian Investments and Blackrock’s (BLK) Spruce ETF Trust unit seeking to launch a novel type of actively managed exchange-traded fund that would not be required to disclose its portfolio holdings on a daily basis.
Active ETFs are available in the U.S. But SEC rules require the funds disclose their holdings daily, which has discouraged firms from offering active products. The proposed non-transparent ETFs would disclose holdings quarterly, as mutual funds do, and often with a 60-day lag.
Precidian and Blackrock are among several firms proposing non-transparent active ETFs, including Eaton Vance (EV), State Street (STT) and T. Rowe Price (TROW). According to ETF.com, proponents of the rule change argue that it allows fund managers to protect their investing ideas and tactics and prevents front running.
Eaton Vance and State Street did not immediately respond to requests for comment. T. Rowe said it would still pursue its own proposal.
But at the heart of the SEC’s ruling regarding Precidian is a concern that the mechanism proposed to keep the market price of such funds in line with their net asset values is insufficient. As the SEC ruling reads:
…the specific features proposed by the Applicants that would cause the proposed ETFs to operate without transparency fall far short of providing a suitable alternative to the arbitrage activity in ETF shares that is crucial to helping keep the market price of current ETF shares at or close to the NAV per share of the ETF. The Commission preliminarily believes that it is not in the public interest or consistent with the protection of investors or the purposes fairly intended by the policy and provisions of the Act to grant the exemptive relief under section 6(c) that the Applicants seek.
To continue reading, please click here for the Barron’s article