The Securities and Exchange Commission is reviving a proposal that will make it easier to launch certain ETF’s, an SEC staff told Reuters.  The regulators want the less complex and basic exchange-traded funds to cut through the red tape and avoid the tedious SEC application process. The ETF industry has grown from $530 billion in 2008 to $1.5 trillion by the end of March 2013.

SEC

The SEC had earlier issued a similar proposal in 2008, but it was put on hold as the global financial crisis ate up SEC’s time. The SEC member told Reuters that their work is still in early stages, and the team is still unsure whether to write an entirely new proposal or simply dust off the old one.

The rule will save resources and time for fund sponsors as well as the agency’s staff. Then SEC staff would be able to focus on approvals of more exotic ETF’s that bring higher risk for simple investors. Additionally, the cost reduction in launching a new fund will result into lower costs for investors.

Exchange-traded funds are investment vehicles that own a variety of stocks and bonds, just like mutual funds. But ETF’s offer shares that can be traded in real time on public exchanges. These characteristics exclude ETF’s from federal securities laws that govern mutual funds. Therefore, every new ETF has to seek approval of SEC before it is launched. The SEC staff told Reuters that the rules may cover basic products that tract an index like S&P 500, as well as other kinds of ETF’s like actively managed funds.

The idea of a new ETF rule picked the momentum again during the last winter when the Investment Management Division of the Securities and Exchange Commission reviewed 70 new ETF project ideas to prioritize its rule making plan. The SEC is focusing on riskier ETF’s that use debts and derivatives to amplify short-term returns. The regulators have been scrutinizing these exotic ETF’s amid reports that they were being sold to simple investors. The regulators said that by making a rule for simplistic products, their staff could devote more time to scrutinize the riskier and complex products.