Schedule 13D/13F Clarity on ETF Issues

Do I need to file a 13D or 13G if my client accounts hold in excess of 5% of an ETF?

Generally, no. The SEC has granted no-action relief to ETFs with respect to compliance with Section 13(d) of the Securities Exchange Act. Section 13(d) was designed to require disclosure when holders begin to accumulate large blocks of equity securities of publicly held companies. Generally, under Section 13(d), any person who indirectly or directly becomes the beneficial owner of more than 5% of an issuer’s equity securities registered under Section 12 of the Exchange Act must file with the SEC a Schedule 13D within 10 days after the acquisition. A person may generally file a short‐form statement on Schedule 13G in lieu of a Schedule 13D if the filer meets certain qualifications including being a “passive investor.”

Since ETFs are structured as open-ended funds, with market makers able to create and redeem shares to satisfy market demand, the value of the shares does not materially differ from the value of the per share NAV of the Fund. The SEC’s view is that so long as there is not a material difference between the actual market price of ETFs and the NAV of the shares, there is no ability to exploit inside information. However, the SEC did state that IF ETFs begin to trade at prices that material deviate from NAV, then the relief available in the No-Action letters would no longer be available.

As stated in the SEC’s Select Sector SPDR Trust No-Action Letter dated May 6, 1999, “An Insider of an open-end fund generally would not be able to exploit inside information by buying or selling shares of the fund on the basis of an anticipated change in the shares’ value because an open-end fund is required to price its shares, and effect redemptions and sales of its shares, at NAV.”

As stated in the SEC’s PDR Services Corporation No-Action Letter publicly available December 14, 1998 and referenced within the previous no-action letter: “In reaching this position, we note particularly your representation that each Fund’s Shares have traded and will continue to trade at prices that do not material deviate from NAV. If any funds’ Shares begin to trade at prices that material deviate from ANV, the relief granted in this letter would no longer be available.”

Related Content

Latest Content

OCIE Examined 15% of RIAs in 2017

In 2017, the SEC examined 2,114 investment advisers, approximately 15 percent of the 14,000+ registered investment advisers, the SEC confirmed in its Fiscal Year 2019 Congressional Budget Justification Annual Performance Plan. In the same report, the SEC said the staff will continue to improve its efforts of RIAs, noting that nearly 35 percent of all … Continued

Ascendant’s Adam DiPaolo Discusses Hypothetical & Model Performance Marketing Pitfalls

A Jan. 12 article in HFMCompliance titled “Best practice for hedge funds using hypothetical and model performance” outlines best practices for hedge fund managers when using hypothetical performance or model data in marketing efforts, and how managers relying on such data can avoid enforcement actions. Adam DiPaolo, Senior Consultant in Ascendant’s Private Funds group, is quoted in the … Continued

SEC’s Exam Priorities Offer Insight Into National Exam Program

On February 7, 2018, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued their 2018 Examination Priorities (see Ascendant’s summary here). In addition to defining their examination priorities for the year, the OCIE staff offered some insight into the National Exam Program.  Specifically, they defined the following five principles in executing their exam priorities: … Continued

SEC Updates: ICO Gatekeeper Standards, SEC/CFTC Swap Rules

SEC Chairman Jay Clayton had some stern advice for market professionals, especially gatekeepers, who he said need to act responsibly and hold themselves to high standards. Speaking via videoconference during Securities Regulation Institute’s recent annual conference, he said, “To be blunt, from what I have seen recently, particularly in the initial coin offering (“ICO”) space, they … Continued

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.