Washington, D.C. - The possibility that actively-managed exchange-traded funds could cause market volatility is one of the issues to be addressed in a concept release' that the Securities and Exchange Commission expects to issue in the next few months, according to Paul Roye, director of the SEC's division of investment management. Roye discussed the SEC's active exchange-traded fund concept release at the general meeting of the Investment Company Institute of Washington D.C. here earlier this month.
The main problem an actively-managed exchange-traded fund presents is how to keep the market price close to the fund's net asset value without requiring the fund to release its holdings daily, according to Christopher Traulsen, an analyst at Morningstar of Chicago. If a fund is required to disclose its portfolio, there is little to prevent front running, he said. With passive exchange-traded funds, disclosure is not a problem since the securities that make up the index are already public knowledge.