The next salvo in a push by providers of exchange-traded funds
to capture a bigger part of the $7 trillion U.S. stock mutual funds
market has taken place.
The operator of the New York Stock Exchange filed a request with
the Securities and Exchange Commission on Thursday to adopt a new
rule that would permit so-called "nontransparent" ETFs to list and
trade on its platform.
The ETFs would be listed on the Arca trading platform of the
NYSE Euronext, a unit of IntercontinentalExchange Group Inc.
As it stands now, ETF sponsors must report securities held in
each portfolio on a daily basis. Officials at NYSE Euronext, the
exchange's parent, are now asking for permission to trade ETFs that
only have to report quarterly, much like traditional mutual funds,
according to a copy of the filing on the exchange's website. An
NYSE official confirmed to The Wall Street Journal that it had been
transmitted to the SEC.
"We're finally seeing some real momentum in the move to gain
regulatory approval for nontransparent ETFs," said Kathleen
Moriarty, an ETF pioneer who is now an attorney at Katten Muchin
Rosenman LLP in New York. She was on the team that developed the
SPDR S&P 500 ETF, the first exchange-traded fund, which
launched in 1993.
Proponents of the change argue that nontransparent ETFs would
allow managers engaged in actively picking stocks and other
securities to compete much more effectively with traditional mutual
funds. To date, the ETF industry is overwhelmingly focused on
passive investing that follows an index. Funds not linked to a
benchmark represented 0.01% of the nearly $1.2 trillion in
U.S.-listed stock ETF assets through last week, according to fund
researcher Lipper. By contrast, some 76% of stock mutual fund
assets are actively managed.
The NYSE's request comes a day after Precidian Investments, of
Bedminster, N.J., filed the first proposed prospectus detailing how
such ETFs might work. The document lays out guidelines for three
proposed U.S. stock portfolios--one covering large caps, another
investing in domestic mid caps and the last taking a multi-cap
approach. The funds would use a custodian and a blind trust to help
shield key information about holdings until the end of each
quarter.
The NYSE filing describes ETFs much in the same manner as
Precidian's system. Rival exchange operator Nasdaq OMX Group Inc.
has also been working with other fund sponsors interested in
bringing to market nontransparent ETFs, those familiar with the
situation have told The Wall Street Journal. They expect a request
laying out trading rules for a different set of nontransparent ETFs
to be filed sometime in the first quarter, perhaps in coming
weeks.
Other industry leaders have also filed with the SEC to move in
the same direction, although those plans haven't reached the stages
of submitting a formal prospectus or definite trading rules,
according to analysts. Those include BlackRock Inc., State Street
Corp., Eaton Vance and T. Rowe Price.
Write to Murray Coleman at murray.coleman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires