The SEC wants to hear from you — this time on an investment vehicle most financial advisers hold near and dear: exchange-traded products.
The agency solicited input earlier this month on the way it approves new, novel or complex ETPs. As reporter Mark Schoeff Jr. reports in this issue, the request for comment included 53 sets of questions touching on market pricing, legal exemptions and listing standards.
Perhaps more importantly, the request delved into how brokers sell ETPs to clients — and to what extent investors really understand what they're buying.
The SEC has been awash in fund company applications to create all variety of exchange-traded funds, notes and pooled investments. Mr. Schoeff reports that from 2006 to 2013, the number of ETPs listed and traded has risen by an average of 160 annually. The agency is humbly seeking feedback on this enormous undertaking from those who know best how these funds work — you — as well as from the public, whose money is increasingly going into them.
The funds' growing popularity has attracted much regulator attention.
Securities and Exchange Commission member Kara Stein spoke last week about concerns with alternative ETFs and mutual funds, particularly those that are less liquid and employ complex strategies, and suggested the agency should scrutinize whether they are skirting rules and endangering investors.
INVESTOR PROTECTION
The SEC request for comments on ETFs sounded a similar investor-protection bell. It included this question: “Should broker-dealers have additional responsibility to make available or provide information to investors about the risks of investing in ETPs with complex strategies prior to making a recommendation or accepting a customer order for such securities?”
These products are important to you and your clients — be sure they are regulated in a way that makes sense. Email your comments by August 17 to rule-comments@sec.gov, with File Number S7-11-15 in the subject line.
