In March 2008, the Securities and Exchange Commission (“SEC”) proposed new rules under the Investment Company Act of 1940 (the “40 Act”) that would exempt exchange-traded funds (“ETFs”) from certain provisions of the 40 Act as well as certain SEC rules, and would allow investment companies to more freely invest in ETFs than is currently allowed under the 40 Act.  The SEC also proposed an amendment to Form N-1A (the registration form used by open-end management investment companies to offer and register their securities) to promote more useful information for investors trading ETF shares.
 
The new rules are intended to facilitate ETFs’ activities and allow investors to take better advantage of ETFs’ investment opportunities.  Specifically, the proposed rules are designed to eliminate unnecessary regulatory applications that are currently required for ETFs to perform their regular functions, and to promote greater competition and innovation among them.

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