Jay Clayton and his colleagues may have just kickstarted a new era in the U.S. ETF business, which in 27 years has grown to about 2,284 ETFs and other ETPs with $3.36 trillion in combined AUM.

Walter Joseph "Jay" Clayton III U.S. Securities and Exchange Commission Chairman

Yesterday, the commissioners of the Securities and Exchange Commission (SEC) approved a new rule, and a related exemptive relief order, to simplify the process of entering the ETF business. (The SEC had initially scheduled an open meeting on the matter for Wednesday, i.e. the day before yesterday, but on Tuesday afternoon they canceled that meeting.) For firms entering the ETF business, so long as their ETFs meet certain requirements, they will no longer need to individually seek exemptive relief orders from the SEC in advance. This idea has bounced around at the SEC since 2008, at least.

Barron's, Bloomberg, Citywire, ETF.com, Pensions & Investments, Reuters, Seeking Alpha, ThinkAdvisor, and the Wall Street Journal all covered the news.

The new reg, Rule 6c-11, only applies to ETFs structured as open-end funds under the '40 Act; it does not apply to ETFs structured as UITs. It also doesn't apply to leveraged ETFs, inverse ETFs, non-transparent ETFs (i.e. ETFs that disclose holdings less than daily), and ETFs that are share classes of a multi-class fund. And for ETFs that 6c-11 does cover, it trumps the exemptive relief orders the SEC has previously issued.

In theory, the rule should make it easier for new players to enter the ETF business, at least those launching traditional ETFs, as they will no longer have to go through the waiting game (of months or years even) of getting exemptive relief first. A key barrier to entry is being lifted, it seems.

"As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections," states Clayton, chairman of the SEC.

Paul Schott Stevens, president and CEO of the Investment Company Institute (ICI), lauds the rule as "important step in the evolution of these funds."
"The rule, exemptive order, and disclosure requirements will greatly benefit ETFs and their investors by lowering barriers to entry, fostering more innovation, and facilitating greater competition in the marketplace while ensuring strong protection for ETF investors," Stevens states.

6c-11 may also impact ETF industry M&A. Historically, increasing speed to market by gaining an existing ETF exemptive relief order has been one of the benefits for would-be ETF players who buy existing ETF shops -- now, many new players will not find their speed-to-market hampered, at least not by the SEC.

Similarly, 6c-11 may also change the dynamic of ETF-in-the-box shops serving startup ETF players who don't have their own exemptive relief orders. Many startups may still need to rely on ETF-in-the-box shops, but not for exemptive relief. 

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