U.S. securities regulator takes aim at exchange-traded funds

Fri May 20, 2016 3:41pm EDT
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WASHINGTON (Reuters) - The top U.S. securities regulator is taking aim at exchange-traded funds, with the agency's chair on Friday saying that recent events have called for giving the popular funds "enhanced attention."

The statements by Mary Jo White, chair of the Securities and Exchange Commission, were the frankest warning yet that the agency could tighten regulation of the funds.

The funds, which typically track a stock or bond index and are traded like stocks, have more than quadrupled in number over the last decade. They now have a total of $2 trillion in net assets, according to the Investment Company Institute, a trade group.

In January, the SEC said it would examine the funds for compliance with securities laws.

In addition, the SEC's staff has analyzed the 2010 "Flash Crash" and the wild market swings of Aug. 24, 2015, with an eye toward disparities between prices for index ETFs and equities, White said.

"Despite the popularity and broad success of these funds, their history is not without some turbulence," White said at an asset manager meeting hosted by the ICI.

"Further regulatory steps beyond additional disclosures may be needed," she added.

In February, Commissioner Kara Stein, a Democrat, called for heightened scrutiny.

The commission's staff has also analyzed the roles of market makers in operating and trading ETFs, the interconnectedness of the funds' prices and portfolio holdings, sales practices and investors' understanding of the funds, White said.   Continued...

A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June 28, 2012. REUTERS/Mike Stone