US SEC staff eyes streamlining reviews of new ETFs

U.S. market regulators are moving toward faster, streamlined reviews of proposals for new exchange-traded funds, a top official said on Wednesday.

"We are currently in the midst of a concerted effort to evaluate and improve our process for reviewing ETF proposals," said Andrew Donohue, director of the Division of Investment Management at the Securities and Exchange Commission.

Exchange-traded funds are a hot investment vehicle that debuted in the early 1990s. Today, there are more than 260 of them. ETF assets under management total about $337 billion.

ETFs are capital pools similar to mutual funds. But unlike the familiar open-ended mutual fund, which typically prices its shares just once daily, shares in an exchange-traded fund trade and reprice continuously all day on an exchange.

The first ETF was the S&P 500 SPDR , which debuted on the American Stock Exchange in 1993.

The SEC has been criticized in some quarters for being too slow in approving the launch of new ETFs, Donohue said in a speech at a conference of ETF and indexed investing managers.

"Our review process should become more streamlined, particularly in terms of our analysis of the underlying markets upon which the ETFs are based," Donohue said.

An investment adviser wishing to introduce a new ETF must now apply to the SEC seeking certain legal exemptions. The SEC can grant the exemptions only after a thorough review of issues such as public interest and investor protection.

"The application process historically has been a time-consuming one," Donohue said.

As interest in ETFs has grown, proposals to launch new ones have poured into the SEC, creating a backlog.

As a result, Donohue said a streamlined review is being eyed for proposals that are similar to existing index-based ETFs. Streamlining could include reducing staff scrutiny of the underlying securities markets, he said.

The SEC staff is also considering permitting ETF sponsors to introduce similar ETFs without going through the exemptive applications process a second time, he said.

In addition, the staff is looking at developing a rule proposal for ETFs that would let them come to market without having to first obtain an exemptive order.

"The number of new, routine, index-based ETF applications submitted this year has convinced us that there is value in focusing our limited resources on developing a proposal for an ETF exemptive rule," he said.

Donohue was named director of the SEC's investment management division in April. He was formerly general counsel at Merrill Lynch Investment Managers, a unit of Merrill Lynch . He was also a member of the board of governors of the Investment Company Institute, a mutual fund industry group.