U.S. regulators on Friday rejected a proposal from the NYSE Arca exchange to be able to list and trade actively managed exchange-traded funds that do not have to disclose their holdings on a daily basis.
The move follows the U.S. Securities and Exchange Commission's announcement earlier this week that it intends to deny proposals from Precidian Investments and BlackRock Inc to be allowed to create such ETFs. Because the NYSE filing is linked to the Precidian funds, the rejection of the exchange's proposed rule change was largely expected.
Regulators must grant both permission to the fund managers to create such funds, as well as approve the exchange's proposed rule change to list such funds, in order for the new breed of ETFs, often referred to as "non-transparent" ETFs, to be able to launch.
While those decisions are made by separate divisions within the SEC, with the Division of Trading and Markets ruling on the exchange's filing, and the Division of Investment Management deciding whether to grant permission to fund managers, the two processes are often said to be in tandem.
"After careful consideration, the Commission does not find that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange," the SEC said in the 34-page order posted Friday.
NYSE declined to comment on the SEC's decision.
Both the NASDAQ Stock Market and BATS Global Markets exchanges also have proposals in front of the SEC to be able to list and trade non-transparent ETFs. Those filings, which are still awaiting a decision, are tied to funds from different firms that are also seeking permission to launch such ETFs.
Speaking on a panel on Thursday about ETF trading at the Metropolitan Club in New York, NYSE executive Laura Morrison told the room that the push for non-transparent active ETFs lives on, despite the SEC's decision around the Precidian and BlackRock filings.
"That doesn't mean that the initiative stops," said Morrison, head of global index and exchange-traded products at NYSE Euronext, while moderating the panel at the Capital Link Dissect ETFs Forum.
"The Exchange strongly believes that, while we're disappointed, we're still going to fight the good fight for the innovation in the industry," she said.
