March 31, 2023
Who may be interested: Non-transparent ETFs, Investment Advisers to Non-transparent ETFs.
Quick Take: The Staff of the SEC’s Division of Investment Management released a statement providing new disclosure language which may be used in digital advertisements by non-transparent ETFs in place of the standardized risk legend required by the exemptive relief granted to such ETFs.
Non-transparent ETFs are actively managed exchange-traded funds that that do not provide daily portfolio transparency, in accordance with SEC exemptive relief. Under the terms of the exemptive relief granted by the SEC, a non-transparent ETF must include in its prospectus, fund website and marketing materials a standardized risk legend that highlights the differences, costs and risks unique to a non-transparent ETF.
Recognizing that the standardized risk legend required by the exemptive orders may be difficult to place in certain digital advertisements (e.g., banner advertisements) due to space limitations, the Staff issued new disclosure language which may be used in digital advertisements in place of the standardized risk legend provided in the exemptive orders. Requirements relating to placement of the risk legend or new disclosure language in a prominent location remain as prescribed in the exemptive orders.
The new disclosure language reads as follows:
This ETF is different from traditional ETFs – traditional ETFs tell the public what assets they hold each day; this ETF will not. This may create additional risks. For example, since this ETF provides less information to traders, they may charge you more money to trade this ETF’s shares. Also, the price you pay to buy or sell ETF shares on an exchange may not match the value of the ETF’s portfolio. These risks may be even greater in bad or uncertain markets. See the ETF prospectus for more information.
The Staff’s statement is available here.
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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