BlackRock (NYSE: BLK), the investment management firm behind the iShares exchange traded funds, recently filed with the Securities and Exchange Commission to take a bold step in offering nontransparent, actively managed ETFs as a way to safeguard against front runners.
According to the exemptive relief filing, BlackRock aims to issue periodic portfolio disclosures, much like what is required with mutual funds, writes Oliver Ludwig for IndexUniverse. By placing a time lag on the disclosures, the firm aims to keep front-running and free riding in actively managed ETFs at a minimum.
The company plans to put its faith in the so-called authorized participant that handles the ETF arbitrage creation/redemption process to keep portfolio holdings and weightings a secret from the public.
“Applicants believe that the availability of real-time pricing information will allow market participants to hedge trading exposures in shares effectively and permit the efficient trading of shares in the marketplace without the need for daily disclosure of the funds’ portfolio holdings,” according to the filing.
Additionally, BlackRock hinted at including a number of domestic equity-based ETFs and a fund-of-funds ETF that may implement the nontransparent feature should the exemptive relief pass muster with regulators.
Currently, the SEC requires daily disclosure of holdings in all ETFs. Active ETFs have so far garnered just over $6 billion in assets, or 0.5% of the total assets under management in U.S.-listed ETFs, according to IndexUniverse data.
September 2nd at 10:58am by Tom Lydon