SEC Requests Comment on Exchange-Traded Products (with Lofchie Comment)
The SEC announced that it is seeking public comment to help inform its review of the listing and trading of new, novel, or complex exchange-traded products ("ETPs").
The SEC is examining key issues that arise when exemptions are sought by a market participant to trade a new ETP or when a securities exchange seeks to establish standards for listing new ETPs. Specifically, the request for comment addresses arbitrage mechanisms and market pricing for ETPs, legal exemptions and other regulatory positions related to the trading of ETPs, and securities exchange listing standards for ETPs. In addition, the request invites comment on how market professionals sell ETPs, especially to retail investors, and on investors' understanding of the nature and use of ETPs.
According to the SEC, the expansion of ETP investment strategies in recent years has led to a significant increase in the number and complexity of these requests for comment. Therefore, the SEC determined that it would be beneficial to undertake an assessment of ETPs and receive public input on these issues.
The public comment period will remain open for 60 days following publication of the comment request in the Federal Register.
Lofchie Comment: We assume that the SEC's review will include both structured notes and exchange-traded funds ("ETFs"). Given the high degree of retail involvement in these products, this is not an area where it is reasonable to rely on the sophistication of investors as protection. And given the importance of these products to the financial markets, firms would probably do well to consider what a good regulatory structure would look like (e.g., required disclosures? suitability procedures? conflict issues? pricing? limits regarding inherent leverage or complexity?) If market participants do not take the time to provide their views, and support for their views, rules will be made without regard to those views.