Category: Alerts

Alaric Compliance Alert: SEC Adopts New Rule to Modernize Regulation of Exchange-Traded Funds

On September 25, 2019, the Securities and Exchange Commission announced that is has voted to adopt a new rule and form amendments that are designed to modernize the regulation of exchange-traded funds (ETFs) by establishing a clear and consistent framework for the vast majority of ETFs operating today.

The adoption will facilitate greater competition and innovation in the ETF marketplace, leading to more choice for investors. It also will allow ETFs to come to market more quickly without the time or expense of applying for individual exemptive relief. In addition, the Commission voted to issue an exemptive order that further harmonizes related relief for broker-dealers.1


Highlights of the announcement

The adoption of the Final Rule represents a seminal event in the history of ETFs by eliminating the need for the “vast majority” of ETFs to seek exemptive relief to operate, facilitating future ETF market growth.

The Final Rule covers the vast majority of ETFs and eliminates the historic distinction between index-based and fully transparent actively-managed ETFs by requiring all ETFs that rely on the Final Rule to comply with the same conditions and provide full portfolio transparency.

Non-transparent (or semi-transparent) actively-managed ETFs are not permitted by the Final Rule.

The Final Rule provides an exemption from Section 22(d) of the 1940 Act, which requires open-end fund shares to be purchased and sold only at net asset value (“NAV”), to be purchased and sold at secondary market prices.

It also grants an exemption from the affiliated transaction provisions of the 1940 Act to permit persons, who are affiliated with an ETF by virtue of owning more than 5% of the ETF’s shares (and their affiliates), to purchase and redeem ETF shares in kind (i.e., in exchange for a basket of securities), which is otherwise prohibited by Section 17(a).

Finally, it grants an exemption from Section 22(e) of the 1940 Act, which generally requires open-end funds to honor redemption requests within seven days, to allow ETFs up to 15 days to deliver foreign investments in connection with in-kind redemptions of ETF shares.

If you have questions about the information provided in this announcement, or for information about our ETF compliance services, please email us at, or call us at 888-243-2448.


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