Flash Analysis: Making Sense of the Non- and Semi-Transparent Active ETF Models

2019 has been a big year for the exchange-traded fund (ETF) industry, with a series of regulatory approvals that should foster innovation and increase competition. Most recently, on November 14, 2019, the SEC issued notices for four “semi-transparent” active ETF models – the T. Rowe, Fidelity, Blue Tractor, and Natixis/NYSE applications. ¹ This, of course, comes on the heels of the SEC’s approval in September of the long-anticipated ETF Rule² and the issuance of conditional exemptive relief relating to 1934 Act “class relief,”³ as well as the SEC’s May approval of the Precidian’s non-transparent active ETF exemptive application.⁴ In addition, the three ETF listing exchanges, NYSE Arca, Cboe BZX and Nasdaq, have recently proposed changes to their listing rules for most ETFs that should, if approved by the SEC, simplify and streamline the initial and continuous listing standards for ETFs relying on the ETF Rule.⁵

The “semi-transparent” models noticed for approval provide some transparency into the ETF’s holdings and baskets available to authorized participants (APs) and other market participants.⁶ While the T. Rowe, Fidelity, Blue Tractor and Natixis/NYSE models are somewhat similar in that they provide a measure of daily portfolio transparency to APs and other market participants, they differ from each other and are all markedly different from the Precidian model, which does not provide for any daily portfolio transparency to APs or other market participants. The following chart contains a brief comparison of some of the principal features of these non- and semi-transparent active ETF exemptive models.

Eaton Vance has also filed an exemptive application for a non-transparent active ETF structure, ⁷ but the Eaton Vance proposal differs from both the Precidian model and the various semi-transparent models.