SEC Director of Investment Management Says Rulemaking on ETFs a "High Priority"

Steven Lofchie Commentary by Steven Lofchie

SEC Division of Investment Management Director Dalia Blass emphasized the need for SEC rulemaking on exchange-traded funds ("ETF"), noting that the ETF market is a $3.5 trillion market "operating under more than 300 individually issued exemptive orders." Ms. Blass's remarks were delivered at the ICI 2018 Mutual Funds and Investment Management Conference.

Among other recommendations, Ms. Blass urged a reconsideration of the nomenclature currently used to describe key terms. She argued that basic terms like "ETFs" and "index providers" are being used in a manner that is different from their original meanings and have become confusing to investors. Ms. Blass noted that the term ETF is used to encompass commodity pools and exchange-traded notes as well as SEC-registered investment companies. She also challenged some common assumptions about "index providers" including the notion that they may rely on the publisher's exclusion from the definition of "investment adviser."

Additionally, Ms. Blass argued that recent developments, particularly with regard to bespoke or narrowly focused indices, appear to have "moved certain index providers away from what we might think of as publishers." Ms. Blass advised industry professionals to review these terms and provide feedback as to whether they are being used appropriately.


Ms. Blass's statements are a good example of the SEC focusing on the basics: regulating large scale public markets, seeking to protect public investors, and establishing rules that are of broad general application. Given the size of the market, it makes sense for the SEC to take on rulemaking with respect to ETFs. In fact, it raises a question as to whether the Investment Company Act itself should be amended to provide statutory recognition of the product.

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