Obama's ETF Impact

In his speech, Obama noted that, "under existing rules, some companies can actually shop for the regulator of their choice." While ETF issuers do not actively shop for regulators, the gaps and overlaps in regulatory authorities are evident in the ETF landscape. As derivative-based ETFs have come under scrutiny, different regulators have emerged to comment on different types of funds.

Both the CFTC and SEC have been involved in the regulation of futures-based commodity funds, impacting the funds in different ways. In a conference earlier this month, these two regulatory agencies resolved to put their heads together when it comes to discussing and regulating ETF products.

Leveraged ETF funds, on the other hand, have been the focus of a series of warnings and regulations from FINRA.

A positive result of Obama's proposals would be coordination between these agencies, especially when it comes to the regulation of similar products. Re-categorization and increased disclosure for derivatives-based ETFs would help investors determine suitability.

It is the current uncertainty, not the threat of regulation, that is hurting ETF issuers and consumers most. As issuers guess at what type of regulation is in the pipeline, they are adapting their strategies on the fly and making moves to protect their funds, even if it results in premiums or discounts for the customer. (See ETF Regulation Battle Bad for Investors.)

Clear-cut regulation would help issuers to develop solid tracking strategies and consumers to pick the right funds for their portfolios.

-- Written by Don Dion in Williamstown, Mass.

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