SEC Issues New Relief For Self-Indexing ETFs

Newly issued exemptive orders loosen requirements for ETFs based on affiliated indexes.

The Securities and Exchange Commission (SEC) recently issued orders to three sponsors of exchange traded funds (ETFs) that, compared to prior exemptive orders issued to ETF sponsors, ease the requirements for "self-indexing" or "affiliated index" ETFs.¹ The terms "self-indexing ETF" and "affiliated index ETF" are commonly used to describe an ETF that is based on an underlying index developed and owned by an affiliated person of the ETF, the ETF's investment adviser, or the ETF's distributor.² The Orders permit the subject ETFs and their underlying indexes to operate more flexibly than existing self-indexing ETFs. Unlike prior exemptive orders governing the operation of self-indexing ETFs, the Orders do not attempt to address potential conflicts of interest among the ETF, its investment adviser, and the affiliated index provider by requiring, among other things, public disclosure