SEC To Consider Universalizing ETF Regulations

An integral part of your investment portfolio might be about to get a makeover.
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ETFs may be about to get a makeover.

The Securities and Exchange Commission will discuss proposing regulations that will allow asset managers to operate millennials' preferred investment vehicle without first securing a exemptive order at an open meeting on Thursday, according to the meeting's agenda on the SEC's website.

"The Commission will consider whether to propose rule 6c-11 under the Investment Company Act of 1940 that would permit exchange-traded funds that satisfy certain conditions to operate without first obtaining an exemptive order from the Commission, as well as related form amendments," the agenda states.

The proposed rule, similar to one last proposed in 2008, would establish standardized regulations for how ETFs operate. Currently, each ETF is given its own rules of the road when it applies for its exemptive order. As a result, early ETF providers such as BlackRock Inc. have fewer restrictions than newer providers.

"There's a decent consensus that it should be simpler for plain-vanilla funds to be introduced, and we expect that to be approved," Capital Alpha Partners analyst Ian Katz wrote in a report Sunday. "The details will be important. At least in theory, SEC Chairman Jay Clayton could push for a more ambitious plan to make it easier to launch ETFs that use leverage or derivatives. However, we would be a bit surprised if he gets very aggressive with this proposal."

If proposed by SEC Thursday and enacted after a comment period, the regulations would significantly ease the cost and time involved in opening an ETF and is expected to provide main street investors with more diverse options in addition to benefiting commercial traders, former SEC special counsel David Lavan said.

"Overall it's going to improve the climate for the retail investor because they'll get more choices and generally I think having more choices is better for them than not," Lavan said.