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SEC to consider applications for actively-managed ETFs

The Securities and Exchange Commission is to partially lift the moratorium on applications for actively-managed exchange traded funds, introduced almost three years ago.

Norm Champ, director of the SEC’s investment management division, made the announcement at a conference hosted by the American Law Institute Continuing Legal Education Group in New York on Thursday.

Speaking at the ALI CLE 2012 Conference on Investment Adviser Regulation, Champ said: “Although the division continues its ongoing review of the use of derivatives by funds, division staff will no longer defer consideration of exemptive requests under the Investment Company Act relating to actively-managed ETFs that make use of derivatives provided any such exemptive request includes two specific representations to address some of the concerns that led to the division’s decision to defer consideration of these types of applications.

“These representations are: (i) that the ETF’s board periodically will review and approve the ETF’s use of derivatives and how the ETF’s investment adviser assesses and manages risk with respect to the ETF’s use of derivatives; and (ii) that the ETF’s disclosure of its use of derivatives in its offering documents and periodic reports is consistent with relevant Commission and staff guidance.”

Champ went on to say, however, that the SEC is still not considering applications for leveraged ETFs. “Because of concerns regarding leveraged ETFs, however, we continue not to support new exemptive relief for such ETFs.”

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