Purpose -To discuss how product innovations in exchange-traded funds (ETFs) have blurred the line between passive and active management, and to explore the legal ramifications of these developments.Design/methodology/approach -Describes how ETFs operate and how the ETF marketplace has grown; discusses the use of broad-based indexes for most ETFs until recently; describes newer ETFs that provide targeted exposure to narrow market segments; and discusses underlying indexes that are based on performance-based characteristics rather than market segments, along with possible difficulties in making performance-based criteria widely available to investors.Findings -Historically the SEC has expressed skepticism over actively managed ETFs because of uncertainty as to whether they can provide the same portfolio transparency and arbitrage opportunity that traditional ETFs can. As ''Rule Sets,'' or criteria for including companies in performance indexes, become more involved and less objective, the challenge will be to ensure that sufficient arbitrage opportunities exist to ensure pricing efficiency. If that challenge can be met, it may serve as a model for a truly actively managed ETF.Originality/value -Explains how the new generation of ETFs is coming closer to the line of active management and the legal issues that must be surmounted before truly actively managed ETFs are offered. KeywordsInvestments, Unit trusts Paper type Technical I n 2001, the Securities and Exchange Commission published a concept release outlining the regulatory challenges associated with an actively-managed exchange traded fund. Almost five years and $200 billion dollars in assets under management later, the ETF industry has continued to evolve and product innovations have moved the industry closer and closer to the line of active management. If this development continues, it could very well revolutionize the investment management industry.
PurposeThis paper sets out to assess the role of the chief compliance officer (“CCO”), how the CCO performs his/her duties, and how the CCO interacts with the fund's board three years after the adoption of Rule 38a‐1 under the Investment Company Act of 1940.Design/methodology/approachReviews the CCO's responsibilities under Rule 38a‐1, discusses how the CCO role has evolved since the rule was promulgated, and focuses on key issues such as oversight versus supervision, the annual review process, risk assessement, testing methodologies, and the annual report to the fund board on the adequacy and operation of the fund's compliance program.FindingsProperly conducted compliance requires the support of a wide range of the advisory/administrative team with the CCO playing the role of conductor of the orchestra. More and more CCOs seek to distance themselves from approving the day‐to‐day actions of other employees, so they cannot be considered to have assumed supervisory responsibility for those employees. Although a fund is required to perform an annual review of the adequacy of its compliance programs and its Primary Service Providers' compliance programs, most CCOs have found the review process is ongoing and occurs continuously throughout the year. Now that these compliance programs have been in place for two years, more CCOs are devoting time and resources to identify high‐risk areas and to implement transactional, periodic, and forensic testing programs. The CCO annual report has taken many different shapes and sizes, but generally summarizes material changes to the fund's compliance policies and procedures that have already been reported to the board.Originality/valueA current, practical assessment of the CCO role by expert lawyers who advise funds on their compliance programs.
PurposeTo explain reporting requirements under Section 13 of the Securities Exchange Act of 1934 (the “Exchange Act”) that must be followed by advisers and brokers who exercise investment discretion over accounts that hold exchange‐traded equity securities, and to describe reporting requirements under Section 16 of the Exchange Act on certain persons considered “insiders” of a company that has a class of equity securities registered under Section 12 of the Exchange Act.Design/methodology/approachDescribes the required reporting of significant acquisition and ownership positions on Schedules 13G and 13D, including the obligations of exempt investors, passive investors, and firms and their control persons; describes the required reporting of equity positions in managed portfolios of more than $100 million on Form 13F; and describes the reporting obligations of “insiders” (directors, officers, and principal stockholders) under Section 16 of the Exchange Act, including the content of Form 3 – Initial Statement of Beneficial Ownership of Securities, Form 4 – Statement of Changes of Beneficial Ownership of Securities, and Form 5 – Annual Statement of Beneficial Ownership of Securities.FindingsFirms and their control persons managing discretionary accounts that hold more than 5 percent of an SEC‐reporting company's equity securities or manage discretionary accounts with market values of $100 million or more; institutional investment managers who exercise investment discretion over accounts with a fair market value of at least $100 million, and corporate insiders have significant reporting obligations under the Exchange Act.Originality/valueProvides a clear, detailed reference concerning Section 13 and Section 16 Reporting Requirements.
Purpose -The purpose of this paper is to assess the history, current use, and possible future of Rule 12b-1 of the Investment Company Act of 1940.Design/methodology/approach -This paper briefly reviews the history behind the original adoption of Rule 12b-1, then discusses the ways in which 12b-1 fees are used today, some of the issues surrounding the Rule, and finally, briefly explores where we might be heading in the future. Findings -The paper finds that, first adopted in 1980 in an effort to prop up a then ailing industry, Rule 12b-1 and Rule 12b-1 fees have been a staple for many mutual funds for almost 30 years. Over this time, the ways in which 12b-1 fees are used has evolved significantly such that some people now wonder whether the Rule continues to serve the purpose for which it was designed.Originality/value -The paper provides a comprehensive evaluation of how mutual funds' use of Rule 12b-1 has changed, what the underlying issues are, and the prospects for reexamination of the Rule.
2016),"SEC proposes sweeping changes to the use of derivatives and financial commitment transactions by registered funds andIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
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