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Commissioners Cautious on Non-Transparent ETFs

The SEC recently approved applications from a number of firms to launch non-transparent ETFs, including T. Rowe Price and Fidelity, as widely reported. However, SEC Commissioners Robert Jackson and Allison Herren Lee issued a statement expressing concern over liquidity and disclosure issues and raised the possibility that more board oversight could be necessary down the road for such funds. “Nontransparent ETFs come with real risk that, in moments of limited liquidity, ordinary investors will face wider spreads and hence get prices that do not accurately reflect the value of their shares.” The commissioners added that the firms which received approval had adopted guardrails to address these issues and helped mitigate that concern. However, “we would be skeptical of nontransparent funds focused on different asset classes that lack those characteristics.” Jackson and Lee wrote that they would like to closely observe the disclosure regime for non-transparent ETFs. “In particular, we wonder whether additional disclosure of the risks, as well as enhanced board oversight of the efficiency of these ETFs, is necessary.”

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