LawFlash

Update on Proposed Listing Standards for Active ETFs

September 10, 2015

The SEC needs more time to consider generic listing standards for active ETFs.

On September 2, the US Securities and Exchange Commission (SEC) published a notice (Notice) designating a longer period of time to consider whether to approve a proposed rule change (Proposed Rule) submitted by NYSE Arca, Inc.[1] As we have discussed in prior memoranda, the Proposed Rule would create generic listing standards for shares of actively managed exchange-traded funds (ETFs).[2] Listing in accordance with the proposed standards, if approved, could significantly reduce the time required to launch active ETFs.[3]

The Notice designated November 5, 2015 as the date by which the SEC will approve or disapprove the Proposed Rule.[4] According to the Notice, the purpose of the additional period is to allow the SEC to consider issues raised in comment letters that were submitted on the Proposed Rule. We expect the SEC may also consider the Proposed Rule in light of recent market volatility and comments received in response to a recent release on ETF trading issues.[5]

We are continuing to monitor developments in this area and will provide further updates as necessary.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
David C. Boch
Mari Wilson

Chicago
Michael M. Philipp

Washington, DC
John V. Ayanian
Laura E. Flores
W. John McGuire
Christopher D. Menconi
David A. Sirignano
Jeremy Esperon

Philadelphia
John O’Brien



[1]. See NYSE Arca, Inc., Notice of Designation of Longer Period for Commission Action on 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 (Sept. 2, 2015), available here.

[2]. See 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; see also W. John McGuire, Richard F. Morris, John J. O’Brien, Jeremy Esperon, Update on Proposed Listing Standards for Active ETFs (June 15, 2015), available here; Richard F. Morris, John J. O’Brien, Jeremy Esperon, SEC Considers Active ETF Listing Standards, Approves Paired Class ETP (Mar. 19, 2015), available here.

[3]. See Letter from Dorothy Donohue, Deputy General Counsel, Securities Regulation, Investment Company Institute, to Brent J. Fields, Secretary, SEC (March 31, 2015), available here (noting that the current process of filing an application pursuant to Rule 19b-4 to obtain SEC approval to list and trade shares of active ETFs often takes more than one year and “creates different rules for similar products depending on the approval vintage”).

[4]. The Proposed Rule was published for notice and comment in the Federal Register on March 10, 2015. Section 19(b)(2) of the Securities Exchange Act of 1934 provides that, after initiating disapproval proceedings, the SEC shall issue an order approving or disapproving a proposed rule change no later than 180 days after the date of publication of notice of the filing of the proposed rule change. The 180th day after publication of the Proposed Rule was September 6, 2015. Section 19(b)(2), however, permits the SEC to extend the period for issuing an order by not more than 60 days if it determines that a longer period is appropriate and publishes the reasons for that determination.

[5]. See Request for Comment on Exchange-Traded Products, Securities Exchange Act Release No. 34-75165 (June 12, 2015), 80 FR 34729 (June 17, 2015), available here; see also W. John McGuire, Richard F. Morris, John J. O’Brien, Jeremy Esperon, SEC Seeks Public Input on Exchange-Traded Product Trading Issues (July 2, 2015), available here.