On September 29, 2017, the SEC approved a proposed rule change (the Extension Proposals) filed by each of The NASDAQ Stock Market LLC, NYSE Arca, Inc., and Bats BZX Exchange, Inc. (the Exchanges) to delay until January 1, 2018 the implementation date of new continued listing requirements applicable to index ETFs listed in reliance on each Exchange’s generic listing standards as well as to index and actively managed ETFs listed pursuant to specific Rule 19b-4 orders (non-generically-listed ETFs). The Exchanges submitted the Extension Proposals just a few days before the October 1, 2017 implementation date in light of concerns that issuers of listed ETFs did not have appropriate procedures and systems in place to monitor and ensure compliance with the new continued listing standards, violation of which could lead to delisting. Pursuant to its authority under Section 19(b)(3)(A) of the Securities Exchange Act of 1934 and Rule 19b-4(f)(6) thereunder, the SEC designated the Extension Proposals to become effective upon filing, allowing the Exchanges to immediately extend the implementation date and ETF issuers to avoid any potential disruption in the trading of their products. 

By way of background, in 2016, the SEC approved generic listing standards applicable to actively managed ETFs for each of the Exchanges. Unlike the generic listing standards for index ETFs in effect at the time, which applied only at the time of initial listing, the generic listing standards for actively managed ETFs apply on a continuous basis. Accordingly, in connection with approving the continued listing standards for actively managed ETFs, the SEC staff requested that the Exchanges submit proposals to amend the generic listing standards for index ETFs to include a similar continued listing standard. The staff also requested that the Exchanges include rule changes to require issuers of non-generically-listed ETFs to comply on a continuous basis with certain representations included in their respective Rule 19b-4 orders. The Exchanges filed separate proposals with the SEC between September 2016 and January 2017. The SEC approved each Exchange’s proposal in substantially the form proposed by mid-March 2017.

Industry participants identified a number of challenges that certain ETF issuers may face in connection with the new continued listing standards, including: (1) that the listing standards would require issuers to develop significant compliance enhancements within a short timeframe; (2) that certain requirements related to circumstances or events outside of an issuer’s control, requiring discussions and negotiations with third parties such as index providers; and (3) that the listing standards, as adopted, lacked clarity in some respects, and that additional interpretive guidance from the Exchanges was necessary.

In light of industry concerns regarding the ability of ETF issuers, in particular issuers of index ETFs, to build and test new compliance systems and procedures in advance of the previously anticipated October 1, 2017 implementation date, each Exchange filed a proposal to delay the effectiveness of the continued listing standards for nine months. As the SEC had not taken action by late September, the Exchanges withdrew their requests to extend implementation by nine months and submitted new proposals to extend the effective date by only three months to January 1, 2018. The SEC accepted these proposals and made them effective upon filing. At the same time, Nasdaq and Bats issued frequently asked questions, intended to provide guidance for issuers of index ETFs with respect to the continued listing standards. The Exchanges indicated that the FAQs will be updated, as needed, based on continuing conversations with issuers about the rule amendments.1

The SEC notices of filing for the Extension Proposals are available as follows:

Nasdaq: https://www.sec.gov/rules/sro/nasdaq/2017/34-81773.pdf

NYSE Arca: https://www.sec.gov/rules/sro/nysearca/2017/34-81775.pdf

Bats: https://www.sec.gov/rules/sro/batsbzx/2017/34-81777.pdf