The New York Stock Exchange has been cleared to allow custom baskets for managers of actively managed semi-transparent ETFs, a move that will likely bolster the parade of active launches during 2021.
In a filing last Friday, US Securities and Exchange Commission regulators approved a request for the exchange to pre-approve the custom basket option for any active manager looking to launch a fund that follows the rules of the NYSE on semi-transparent ETFs.
There are currently 10 issuers on the NYSE that use the semi-transparent model of the exchange, and they are immediately able to start using custom baskets.
Custom baskets allow ETF issuers to accept something other than a basket of securities reflecting the exact weight of their fund, whether it is cash or assets that do not perfectly match the portfolio and weights. fund.
As part of the normal creation and redemption process, Authorized Participants must provide a creation unit that resembles the assets and portfolio weight of an ETF to receive new shares of that ETF.
Friction Fund
While this process works well for index funds, it creates friction for funds in the midst of a rebalancing or recomposition, and for active fund managers looking to ditch an asset and replace it. by another asset.
The ETF rule adopted in 2019 allowed actively managed ETFs that disclose their holdings on a daily basis to use personalized baskets, triggering a flood of new active ETF launches. However, this rule did not apply to semi-transparent actively managed ETFs that started rolling out in 2020. Approval of the new rule will likely boost the already booming pace of actively managed ETF launches to the future.
Of the 332 US-based ETF launches at the end of the third quarter, 197 are actively managed and have garnered nearly $ 39 billion in assets, according to ETF.com data provider FactSet.
Todd Rosenbluth, head of ETF and mutual fund research at CFRA, says investors are increasingly comfortable using ETFs as tools to outperform indices rather than just tracking their own. yields.
“Further efforts to put [active ETFs] on par with index products will only encourage further adoption, ”he said.
NYSE Head of Exchange Traded Products Douglas Yones estimates that he and his team have spoken to 30 to 50 asset managers this year alone about the launch of active funds, and about a dozen more are in the process of filing. ETFs but have not yet done so publicly.
“We spoke to [several] main managers active in the market over the past three years, and this has happened in [almost] every conversation, ”he said.
Contact Dan Mika at [email protected], and follow him on Twitter
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