The SEC is considering an amended proposal by NYSE Arca to adopt generic listing standards for actively managed ETFs.
On June 5, the US Securities and Exchange Commission (SEC) issued an order (the Order) instituting proceedings under section 19(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) to consider whether to approve or disapprove a proposed rule change, as amended (Proposed Rule), that NYSE Arca, Inc. (NYSE Arca) submitted.  The Proposed Rule, if approved, would permit NYSE Arca to adopt generic listing standards for shares of actively managed exchange-traded funds (ETFs). The Proposed Rule amends NYSE Arca’s original proposal, which was published in the Federal Register in March 2015. We previously discussed the substance of the original proposal, for which this LawFlash is designed to act as an update. The Order solicits comments on the Proposed Rule.
The Proposed Rule is substantially similar to the original proposal, with the following exceptions:
The SEC is seeking comments on the Proposed Rule, particularly with respect to the proposed limitations on OTC derivatives. Specifically, the SEC appears to be interested in understanding whether the proposed limitations are sufficient to support the arbitrage mechanism that generally maintains alignment between intraday trading prices of ETF shares and the contemporaneous value of the underlying portfolio. The SEC is also seeking comment on the sources of pricing information available for OTC derivatives.
As we have previously discussed, adopting the listing standards would significantly reduce the time and money required to launch active ETFs that are able to satisfy the Proposed Rule’s conditions. We will continue to monitor these developments and expect to report on further actions that the SEC and NYSE Arca take in this area.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, John McGuire (+1.202.373.6799; firstname.lastname@example.org), Richard F. Morris, Jack O’Brien (+1.215.963.4969; email@example.com), and Jeremy Esperon (+1.202.373.6238; firstname.lastname@example.org), or any of the following Morgan Lewis lawyers:
Michael M. Philipp
John J. O’Brien
. NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to Amend NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares (June 5, 2015), available here. Section 19(b)(2) of the Exchange Act provides that, after initiating disapproval proceedings, the SEC shall issue an order approving or disapproving a proposed rule change not later than 180 days after the date of publication of notice of filing of the proposed rule change. The SEC may extend the period for issuing an order approving or disapproving the proposed rule change, however, by not more than 60 days if the SEC determines that a longer period is appropriate and publishes the reasons for such determination. 15 U.S.C. 78s(b)(2).
. NYSE Arca, Inc., Notice of Filing of Proposed Rule Change Relating to Amendments to NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares (Mar. 4, 2015), available here.