SEC Disclosure Release Surprises: No Top 10 holdings, ETF Changes
The SEC, in its final rule release revising mutual fund disclosure requirements, dispensed with the idea of requiring funds to include their 10 largest holdings in the summary prospectus and included several changes affecting ETF disclosure. The SEC did not require the top 10 holdings information because, according to the SEC, the information would become readily stale and is available elsewhere. With respect to ETFs, the SEC eliminated the requirement that ETF prospectuses disclose how investors buy and sell creation units, relegating that information to the SAI. The SEC did not adopt proposed requirements that ETFs disclose market prices in addition to NAV-based returns or that ETFs include a comparison against its underlying index. Also, the SEC will allow ETFs to omit premium and discount information if the fund includes the information on its website.
OUR TAKE: We are surprised that the SEC did not require the top 10 holdings information, one of the touchstones of the initial disclosure reform initiative and also one of the most controversial requirements in the proposal. The ETF changes are welcome but more will be required as the ETF market grows and matures away from its comparisons with open-end mutual funds.