SEC Proposes New Exchange-Traded Fund and Fund of Funds Rules
By The Investment Management Practice Group
The Securities and Exchange Commission (the SEC or Commission) recently proposed two new rules under the Investment Company Act of 1940, as amended (the Act), designed to facilitate the creation of, and investment into, exchange-traded funds (ETFs). The first proposed rule, rule 6c-11, would permit an ETF to commence operations without first obtaining exemptive relief from the Commission. The second proposed rule, rule 12d1-4, would facilitate investments by other investment companies into ETFs in excess of the limits prescribed by Section 12(d) of the Act, again without first obtaining exemptive relief from the Commission. At the same time, the SEC also proposed amendments to Form N-1A, which is used by open-end investment companies, including ETFs, to register under the Act. These amendments are designed to better tailor ETF prospectuses to provide information important to ETF investors.