State Street Global Markets has asked for Securities and Exchange Commission approval to carry out creation unit trades of exchange-traded funds for affiliated institutions. Under SEC rules, broker/dealers may not perform creation unit trades--which typically involve blocks of around 100,000 shares--for affiliates. SSGM, a State Street subsidiary, is affiliated with the Standard & Poor's Depositary Receipts, or SPDR, family of exchange-traded funds. In a letter to the SEC, SSGM said allowing only third-party B/Ds to perform creation unit trades of ETFs is expensive, adding that an affiliate could not influence price by performing such trades.
"It is costly and inefficient to require [affiliated institutions] to establish separate [B/D] relationships solely for the purpose of engaging in creation and redemption transactions which benefit the market as a whole," SSGM wrote. Requiring the institutions to set up multiple B/D connections also forces unnecessary transfers of assets between B/Ds and "introduces additional costs, delays, reconciliation requirements and the potential for errors and missed market opportunities," SSGM added.
SSGM said that performing creation unit transactions for affiliated institutions is a mechanical process involving a minimum of discretion. "Permitting in-kind transactions between an ETF and its affiliated persons, provided that such affiliates are not treated differently than non-affiliates, creates no risk that an affiliate will effect a transaction detrimental to other ETF shareholders."
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