Price Momentum ETFs Obtain SEC Order and No-Action Letter

The SEC issued an Exemptive Order to ETFs that seeks to track the performance of a particular underlying index (“Index”), which for each ETF is composed of shares of exchange-traded products (“ETPs”) (primarily other ETFs, but also some exchange-traded commodity pools).  Using a methodology developed by the index provider as to the ETFs, each Index is intended to provide exposure to the price momentum of certain equity markets and U.S. fixed income markets by reflecting the combination of weightings of the ETPs that underlie each Index that would have provided the highest six-month historical return, subject to constraints on maximum and minimum weights and volatility controls.  The Index is rebalanced monthly, but may also be rebalanced as frequently as daily if the daily volatility control is triggered. Each ETF intends to operate as an “ETF of ETFs” by seeking to track the performance of its underlying Index in investing at least 80% of its assets in the ETPs that comprise each Index.  Except for the fact that the funds will operate as ETFs of ETFs, the funds will operate in a manner identical to the products that comprise each Index.

The SEC staff also issued a no-action letter as to Exchange Act Rule 10b-17 and Rules 101 and 102 of Regulation M in connection with secondary market transactions and the creation or redemption of shares issued by the ETFs.

Click here to view Order in full (links externally to SEC website).
See also: Request of ALPS ETF Trust for Exemptive, Interpretive or No-Action Relief from Rule 10b-I7 and Rules 101 and 102 of Regulation M promulgated under the Securities Exchange Act of 1934 for Index-Based ETF of ETFs.

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