VettaFi Senior Industry Analyst Kirsten Chang led a panel featuring Vedder Price’s Joe Mannon, Ropes & Gray LLP’s James Thomas, and Stradley Ronon’s Mark Greer, covering key regulatory changes facing the ETF Industry. The session took place at the Industry Conclave at Exchange.
Washington a Question Mark Around Regulatory Changes
According to Chang, the most significant variable in the markets right now is Washington. She posed the question to the panel on their take. Mannon said, “A cloud has been lifted,” noting that the SEC is more of an innovator and helper than a police officer. Accordingly, the tenor has changed.
“There is a lot of change and turnover in the SEC,” said Thomas. “Now is the time if you want to talk to the SEC about new products.”
Greer noted, “I would say if you are a staffer, it’s not great,” speaking to the chaos in terms of government workers facing uncertainty. He does agree that, for the industry, it could be an opportunity.
Private Credit
Greer discussed how the 40-act could be modernized in a way that helps private credit products stand up more easily. Much of it is archaic and due to be revisited.
“It’s a huge opportunity to create a wish list of things you might want to get,” Mannon added.
Thomas said he saw three issues in private credit that are of interest. Valuation is going to be different since they aren’t traded in a normal way. Liquidity is another issue of interest. The final issue was the role of Apollo.
Dual Share Classes and the Coming Regulatory Changes
Chang asked the panel about the dual share class debate.
Thomas said, "Their real concern is that there will be some allocation of cost to the ETF or mutual fund side that’s not fair to shareholders.”
Mannon said this dual share class product has a lot of exciting possibilities. He noted that having an ETF within a Mutual Fund has profound implications for 401Ks.
Greer noted that there is a bit of a “dog catching the car” metaphor at work. Finding out how to price these products could be a challenge, and of the 51 products filed, all of them have slightly different models for approaching some of the structural challenges. Accordingly, the panel agreed that firms thinking about filing should get in now.
ESG Regulatory Changes
ESG may be out of favor in the U.S., but there is a lot to consider in the rest of the world. Europe is ahead of the curve. For example, the United States doesn’t have a lot of regulations regarding AI. Europe, by contrast, is more careful. The panel urged that investors consider all the regulations and risks as they think about ESG.
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