Exchange-traded funds come under US regulator scrutiny

Exchange-traded funds come under US regulator scrutiny

Exchange-traded funds come under US regulator scrutiny The U.S.’s top securities regulator is focusing more tightly on exchange-traded funds, according to a Reuters report.

Mary Jo White, chair of the Securities and Exchange Commission, said that recent events show exchange-traded funds deserve “enhanced attention” – a signal the agency could tighten regulations on the popular funds.

The funds usually track a stock or bond index, and are traded like stocks. The number of exchange-traded funds has more than quadrupled in the last decade, with a total of $2 trillion in net assets, according to Reuters.

The SEC said in January that it would examine ETFs for compliance with securities laws. And White said that the agency has examined the 2010 “Flash Crash” and the wild swings on the market last August, focusing on price disparities between index ETFs and equities.

“Despite the popularity and broad success of these funds, their history is not without some turbulence,” White said, speaking at a meeting hosted by the Investment Company Institute. “Further regulatory steps beyond additional disclosures may be needed.”

White said that SEC staff also examined the roles of market makers in operating and trading ETFs, as well as the interconnectedness of the funds’ prices and portfolio holdings and sales practices. The SEC also examined investors’ understanding of the funds, Reuters reported.

The industry is already under pressure after a December proposal by the SEC for a rule that would limit how investment funds use derivatives, according to Reuters. Some ETFs say they would have to close – or at least change their investment strategies – if the rule is implemented.

But White said the rule was meant to “provide an updated and more comprehensive approach to regulating funds’ use of derivatives in light of the significant growth in the volume and complexity of derivatives over the past two decades and the increased use of derivatives by certain funds.”

Under the proposal, a fund would have to comply with a portfolio limitation on either exposure or risk from derivatives, Reuters reported.


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