Are ETFs Regulated?

ETFs are regulated by the SEC and were granted exemptive relief under the following acts:

  • The Securities and Exchange Act of 1934
    • Enables broker/dealers and others to bid and offer shares in the secondary market.
  • The Investment Company Act of 1940
    • Enables shares to trade on an exchange at prices other than the net asset value (NAV).
    • Enables ETF shares to be redeemed at the NAV in creation units only.

 

How Many ETFs Exist?

At the time of this writing approximately 2,000 U.S. listed ETFs and their components are distributed daily to more than 70 customers. Approximately 58% of these ETFs are eligible for creation and redemption through NSCC. A complete list of ETFs are available at:

http://www.dtcc.com/en/charts/exchange-traded-funds.aspx.

 

Does NSCC Process ETFs?

NSCC's ETF process automates the creation and redemption of ETF securities. NSCC reports, clears, and settles ETFs and their underlying securities through its creation/redemption process. ETF processing also includes a nightly distribution of domestic, foreign, and fixed income portfolio information.

All relevant ETF formats are available at: http://dtcc.com/clearing-services/equities-clearing-services/user-documentation/client-center-formats/file-formats.aspx.

 

Additional Notes:

  • NSCC allows participants to customize portfolios by excluding specific securities and replacing them with cash.
  • NSCC can support ETF processing when the underlying security is not eligible at NSCC (for ETFs that have been created and redeemed against cash, in lieu of securities).
  • NSCC also clears and settles ETFs traded in the domestic secondary market.

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