The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

SEC Questions Illiquidity Risk In Niche ETFS

The Securities and Exchange Commission in its proposed codification of exemptive relief for exchange-traded funds has raised questions about the liquidity of ETFs that focus on narrow sectors

The agency invited public comment on whether illiquidity would be problem in the case of such ETFs. Open-end funds cannot hold more than 15% of their portfolio in illiquid securities. The SEC raised the issue for public discussion, asking whether in the case of certain ETFs the percentage should be less.

In seeking comments, the proposal asks what liquidity requirements might be needed and why. “Should the chance (or likelihood) that substantial discounts or premiums may occur if an ETF portfolio contains less liquid securities or assets be a regulatory concern for the Commission, or should it be treated as a material risk?” it asks. “Would liquidity requirements preclude the development of specialty ETFs that serve narrow investment purposes but which may satisfy particular investment needs of certain investors?”

John McGuire, partner at Morgan Lewis & Bockius who works with ETF firms, said he did not think that the SEC was concerned about liquidity issues but was simply asking if anyone in the industry had such concerns. He said he was confident that market makers would ensure that no ETFs suffered liquidity issues. 

More stories from Fund Action

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree