SEC No-Action Relief Clears Operational Hurdles for Broker-Dealers Handling ETFs with Foreign Holdings

Who may be interested: Exchange-Traded Funds, Broker-Dealers, Registered Investment Companies, Registered Investment Advisers, Compliance Staff, Boards of Directors

Quick Take: The Securities and Exchange Commission (the “SEC”) has granted no-action relief to the Securities Industry and Financial Markets Association (SIFMA) easing capital holding requirements for broker-dealers that act as Authorized Participants (APs) for ETFs with foreign holdings. This is expected to remove a key operational barrier for broker-dealers, reduce regulatory friction, and encourage greater market participation.

On July 22, 2025, the SEC granted no-action relief to SIFMA (the “SIFMA No-Action Relief”) regarding broker-dealer capital holding amounts for ETFs with foreign securities. The relief is expected to make it easier for broker-dealers to serve as APs for ETFs invested in foreign securities where ETF share creation and redemption transactions occur on an in-kind basis. 

Key Highlights

• Broker-dealer APs often encounter settlement timing mismatches when creating or redeeming shares of ETFs that hold foreign securities. This timing mismatch occurs when settlement timeframes in the local market are longer than the T+1 time frame that applies to US transactions, including ETF shares. For example, a broker-dealer may deliver cash collateral in share creation transactions, or ETF shares in share redemption transactions, without delivering or receiving the corresponding foreign securities immediately.
• This delay or “mismatch” results in an unsecured receivable pursuant to paragraph (c)(2)(iv)(E) of the Securities Exchange Act of 1934 Rule 15c3-1(“Rule 15c3-1”), which normally requires a deduction from the broker-dealer’s net capital.
• SIFMA requested that the SEC to confirm that it would not recommend enforcement action against broker-dealer APs that do not deduct from their net capital the amount of temporary unsecured receivables generated in ETF transactions when the ETF holds foreign securities that are not cleared through an SEC-registered clearing agency.

Conditions for Relief

Th SIFMA No-Action Relief is available when the following conditions are met:

• ETF Creations: All collateral posted by the broker-dealer must be returned to the broker-dealer within four business days after the initial delivery of portfolio securities.
• ETF Redemptions: The broker-dealer must receive both the portfolio securities and collateral within four business days after the initial delivery of ETF Shares.
• Custody Requirement: The ETF’s U.S. bank custodian must retain collateral until the completion of the transaction.
• Exposure Limits: The amount of the unsecured receivables cannot exceed:
  • 10% of the broker-dealer’s tentative net capital, per transaction.
  • 25% of the broker-dealer’s tentative net capital, in the aggregate across all ETF creations and redemptions.

Market Impact

• This change is expected to reduce barriers to broker-dealer participation, enhance market efficiencies and expand investor access to foreign-invested ETFs.
• The change comes at a time when international equity ETFs are experiencing rapid growth, reaching $1.6 trillion in assets as of June 30, 2025, according to Morningstar data.
• SIFMA emphasized that the move to T+1 settlement in the U.S. has worsened timing mismatches and amplified this issue, making this regulatory adjustment both timely and necessary.

The SIFMA No-Action Relief can be found here.