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Eaton Vance has filed a second amended application with the US Securities and Exchange Commission seeking exemptive relief to permit the offering of exchange-traded managed funds (ETMFs), a form of non-transparent actively managed exchange-traded fund (ETF).
The ETMF exemptive application was originally filed on March 27, 2013 and first amended on September 12, 2013.
Eaton Vance is seeking to launch a family of ETMFs that mirror existing Eaton Vance mutual funds and to license the underlying technology to other fund groups through its affiliate Navigate Fund Solutions. Aspects of ETMFs and NAV-based trading are protected intellectual property subject to issued and pending US patents.
“The filing of a second amended exemptive application is another step forward in the process of seeking regulatory approval for ETMFs,” said Stephen W. Clarke, President of Navigate. “We are pleased by our continuing regulatory progress and encouraged by the broad-based interest in ETMFs expressed by fund sponsors, market makers, broker-dealers and the investors they represent.”
ETMFs are a proposed new type of open-end fund designed to bring the performance advantages and tax efficiencies of the ETF structure to active investment strategies, while maintaining the confidentiality of current portfolio trading information.
ETMFs would trade on an exchange at prices directly linked to the fund’s next-determined daily net asset value (NAV), using a proposed new trading protocol called “NAV-based trading.” In NAV-based trading, prices would vary from NAV by a market-determined premium or discount, which may be zero. Because ETMFs would provide market makers with opportunities to earn reliable arbitrage profits without intraday hedging of their inventory positions, they can be expected to trade at consistently tight spreads to NAV in the absence of full holdings disclosure.
Active fund managers have to date largely avoided introducing their leading strategies as transparent ETFs because the required daily holdings disclosures can facilitate front-running of portfolio trades and enable other investors to replicate the fund’s portfolio positioning and exploit its research insights. By removing the requirement for daily portfolio transparency, ETMFs can potentially enable investors to access a broad range of proven active strategies through a vehicle that provides the investor benefits of an ETF.