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SEC scales back regulatory barriers for ETFs

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Wall Street’s main watchdog is cutting back regulatory red-tape for ETFs, potentially triggering faster growth for the $4 trillion market.

After more than a decade of wrangling, the SEC said Thursday that it had eased constraints that the industry argues have slowed down the process of issuing new ETFs. Specifically, the regulator eliminated the need for ETF providers to seek a special order from the agency before funds can be sold to investors.

“As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections,” said SEC Chairman Jay.

The changes represent a delayed but nonetheless major win for the ETF industry, which has long complained about the wait and cost associated with getting the regulator to sign off on new funds. The move, which is focused on straight-forward ETFs based on things like the S&P 500 and bond indexes, may also add more fuel to the global shift into passively managed funds.

The average expense ratio among the leading 20 is nearly 40 basis points cheaper than what investors paid on average last year.
July 10

The new, streamlined process will still require firms wishing to list more complex products to seek approvals through the more drawn out approach the regulator currently uses. For example, so-called leveraged funds that hold derivatives to juice more returns from their strategy won’t get an easier pass.