The SEC recently hosted a program that featured academic, legal and business perspectives on the exchange-traded products sector. The panelists discussed how ETPs affect financial markets; how ETPs affect investors; and the future of ETPs. In an opening speech, Commissioner Michael Piwowar acknowledged the growth of the sector and raised a number of issues important to regulators and policy makers, including the effects of ETPs on the value of their underlying securities and overall quality of financial markets and whether ETPs are leading to reduced efficiency in the capital markets. Commissioner Kara M. Stein in closing remarks echoed some of Piwowar’s points and discussed the slow pace of regulation compared to rapid product innovation in the sector, pointing specifically to the exemptive application approval process. The industry has long awaited an ETF rule, which could streamline the approval process for such products. Stein noted that a current challenge for the SEC is to ensure that its approach to ETPs matures along with the market and that rigor and research are still necessary. “Today, there are decades of data and observations. This information can help us answer key questions about ETP trading, volatility, transparency, and investor protection. To that end, we need more high-quality research to help us sort the data and develop an analytical framework,” she said.
The steady shift of assets from actively-managed investments to ETFs and other passive forms of investing continues to lead asset managers to find ways to adapt. Allianz Global Investors is the latest firm to introduce a performance fee on some of its mutual funds. The funds will charge investors a management fee only if the funds beat their benchmarks, according to a Financial Times report.