05 March 2008

SEC proposes to streamline ETF approval process

The SEC voted unanimously to propose two new rules under the Investment Company Act to permit exchange-traded funds (ETFs) to operate without the need to obtain individual exemptive orders from the Commission.

ETFs are similar to traditional mutual funds, but issue shares that trade throughout the day on securities exchanges.  The Commission also proposed amendments to disclosure Form N-1A to include additional information for ETF investors who purchase shares in the secondary markets.

Proposed Rule 6c-11 under the Act would provide several exemptions from the Act to permit ETFs to form and operate without the need to obtain individual exemptive relief from the Commission.

Proposed Rule 12d1-4 under the Act would allow investment companies to make larger investments in ETFs than currently permitted under the Act, which limits one investment company to acquiring no more than 3 percent of another investment company’s shares.

The proposed amendments to Form N-1A, which open-end funds use to register under the Act and offer their securities under the Securities Act of 1933, would accommodate the use of the form by ETFs.

The comment period for the proposal will end 60 days from the date of publication of the proposed rule in the Federal Register.

The full text of the proposing release will be posted to the SEC Web site as soon as possible.

Press release

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