FR 2021-00961

The document from the Federal Register details a notice from the Securities and Exchange Commission (SEC) regarding an application to amend a previous order related to exchange-traded funds (ETFs) managed by Natixis Advisors, L.P. The key change proposed in this amendment involves the flexibility for these funds in creating "Creation Baskets"—combinations of securities investors provide to create or redeem shares in the ETF. This alteration intends to allow these baskets to hold securities that might not appear in the fund's Proxy Portfolio, which is expected to lower costs and improve operational efficiency without harming the fund's shareholders.

Significant Issues and Concerns

1. Complex Language and Terminology
   The document uses legal and financial terminology that might be challenging for individuals without a background in finance or law to understand. Terms like "exemptive relief," "Proxy Portfolio," and specific references to the Investment Company Act need simplification for a broader public understanding.

2. Clarity on Procedures
   The document mentions the adoption and implementation of written policies for managing Creation Baskets, yet it does not go into detail about what these policies involve or how they serve investor interests. Clearer explanations would aid in comprehending how these policies will function practically and mitigate any risks.

3. Lack of Financial Implication Discussion
   There is a noticeable absence of discussion around the potential financial implications of this amended order. Stakeholders and the general public would benefit from transparent insights into how this change might influence their investments or the broader market.

4. Reasons for Amendment and Investor Protection
   While the document outlines the procedural reasons behind the proposed amendment, it lacks substantial emphasis on the necessity of this amendment from an investor protection perspective. More insight into how this benefits investors would enhance transparency and trust.

5. Concerns of Reverse Engineering and Selective Disclosure
   The document touches on potential issues like reverse engineering—the possibility of deducing the fund’s complete actual portfolio from the information in the Creation Basket—and selective disclosure, but does so briefly. An expansion on these issues, perhaps with examples, would help stakeholders understand the extent and mitigation of these risks.

Impact on the Public

For the general public, the most direct impact of this document is its potential influence on investment options and costs associated with ETFs. By allowing greater flexibility in the composition of Creation Baskets, the funds can potentially lower transaction costs and improve liquidity and pricing efficiency, which are beneficial to investors seeking cost-effective trading solutions.

Impact on Stakeholders

Positive Impacts:

• Investors: Should the amendment lead to reduced operational costs for funds, these savings might be passed on to investors, enhancing their returns.

• Fund Managers: The flexibility in choosing securities for Creation Baskets may lead to more efficient fund management and better alignment with investment strategies.

Negative Impacts:

• Market Participants: Without sufficient safeguards, there might be concerns about increased complexity or vulnerability to fund strategies being reverse-reviewed by competitors, affecting market competitiveness.

Overall, the proposed amendments aim to modernize and enhance the efficiency of ETF operations. However, addressing the outlined issues, such as using less complex language and offering clearer implications, would greatly benefit both laypersons and stakeholders. This would ensure the SEC's intentions are clearly communicated and understood by all, fostering a more informed and confident investment community.