Concept Release on Exchange Traded Funds – 2001

Actively Managed ETFs Raise Questions and Request for Comments

By John M. Baker, Esq.

The Securities and Exchange Commission on Thursday issued a concept release seeking comments on actively managed exchange-traded funds, or ETFs. Actively Managed Exchange-Traded Funds, Release No. IC-25258 (Nov. 8, 2001).

All existing ETFs are based on market index and hence have transparent holdings. An ETF relies upon large investors’ ability to purchase and redeem large blocks of shares, known as creation units, in kind with a basket of securities mirroring the ETF’s portfolio, so under the current scheme transparency is essential.

It is far from clear how an actively managed ETF could achieve such transparency and whether, in light of the opportunities for front-running, such transparency would even be desirable. Nevertheless, some fund sponsors seek to create actively managed ETFs.

The SEC invites comments on a number of broad issues, including

How are actively managed ETFs likely to be structured, managed and operated?

How will investors use, and benefit from, actively managed ETFs?

Would the exemptive relief that the SEC has granted to index-based ETFs be appropriate for actively managed ETFs?

Are there any new regulatory concerns that might arise in connection with actively managed ETFs?

Comments are due 60 days after publication in the Federal Register. The concept release is available online at


Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  



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