SIE Understanding Products and Their Risks Question 30: Answer and Explanation

Question: 30

Which of the following is the recent regulatory change that most significantly improved the viability of actively managed ETFs in the market by allowing them to maintain confidential evidence of their proprietary management style?

• A. Commodity Futures Modernization Act of 2000
• B. Investment Company Act of 1940
• C. SEC Rule 6c-11 (called the ETF Rule), implemented in 2019
• D. SEC approval of the Precidian ActiveShares ETF model in 2019

Correct Answer: D

Explanation:

D: SEC approval of the Precidian ActiveShares ETF model in 2019 allowed ETFs to publish a list of their holdings quarterly, as mutual funds do, rather than daily, allowing their proprietary trading strategies to be more private. The Commodity Futures Modernization Act of 2000, Choice A, updated the definition of equity security originally contained in the Securities Exchange Act of 1934 § 240.3a11-1 to include a security future. The Investment Company Act of 1940, Choice B, defined investment companies (closed-end and open-end, known as mutual funds), unit investment trusts (UITs), and face-amount certificate companies. The SEC Rule 6c-11 (called the ETF Rule) issued in 2019, Choice C, allowed ETFs to come to market more quickly by allowing exemptions to be approved more quickly for redeemable securities, NAV trading, and transactions with affiliated persons but did not materially address the confidentiality of ETF holdings.