The Securities and Exchange Commission has asked ETF providers to weigh in on whether it should impose stricter liquidity requirements to prevent ETFs with illiquid assets from trading at substantial discounts or premiums, or if more disclosure would solve the problem. ETFs now may not invest more than 15% of assets in illiquid securities.
Barclays said that the ETF market regulates itself effectively on liquidity issues because spreads that grow too wide adversely affect the ETF, adding that it did not believe any of its ETFs ever had such an issue. Barclays said it “believes there is ample experience that demonstrates the shares of ETFs that hold relatively less liquid securities trade effectively in the secondary market.”
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