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Wall Street Weighs In On ETF Proposals

Morgan Stanley, JPMorgan Chase, Merrill Lynch and Goldman Sachs last week wrote a joint letter to the Securities and Exchange Commission to express concern over a proposal that would require brokers to confirm that an exchange traded fund share redemption by an institutional investor does not constitute more than 3% of the ETF's shares.

In the letter the firms said funds typically custody their holdings at third-party, custodial banks so that broker/dealers may not be aware of funds' holdings. "Requiring broker/dealers, who have far less information about a fund's portfolio than the fund itself, to know each fund's ownership status before submitting a redemption order and to obtain representations from each fund imposes an unfair regulatory burden on the authorized participants and could potentially frustrate otherwise legitimate redemption activity."

The firms praised a proposal that would allow ETFs to use cash in the creation and redemption process. "The firms urge the Commission to retain this flexibility without making further changes to these provisions," the letter said. 

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