Last updated: 07:07 / Friday, 11 March 2016
According to BNY Mellon

Regulatory Clarity Could Pave Way for Significant Increase in Active ETFs

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Regulatory Clarity Could Pave Way for Significant Increase in Active ETFs
  • Some active managers do not want every move studied by high-frequency traders
  • Investors are willing to give up some transparency to access active management in a cost-effective vehicle
  • Regulatory uncertainty has slowed the launch of actively managed ETFs

The number of actively managed exchange-traded funds (ETFs) is likely to increase significantly once the U.S. Securities & Exchange Commission rules on proposals designed to discourage high-frequency traders from stepping ahead of active managers, according to BNY Mellon's ETF Services group.

While traditional ETFs are highly transparent, this characteristic has been a detriment to some active managers who do not want every move studied by high-frequency traders seeking to front-run their transactions.  The various proposals being considered by regulators would limit the transparency required for managers of active ETFs. However, many in the industry believe that investors are willing to give up a measure of transparency to access active management in a cost-effective vehicle.

Steve Cook, business executive, structured product services at BNY Mellon, said, "Uncertainty around which proposal will be adopted has slowed the launch of actively managed ETFs this year.  However, once we have regulatory clarity, we expect a rebound in launches of actively managed ETFs. It will result in more options for investors, which is what everyone wants." 

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