SEC Staff Issues Statement on ETFs: Demands Clarity in Foreign Currency Holdings
Staff Statement on Rule 6c-11(c)(1)(i)(C) Regarding Description of Foreign Currency Holdings
To enhance market transparency, the staff of the Securities and Exchange Commission’s (SEC) Division of Investment Management has issued a new directive concerning the reporting of foreign currency holdings by Exchange-Traded Funds (ETFs). Addressing compliance with Rule 6c-11 under the 1940 Act, the statement outlines the necessity for ETFs to provide detailed disclosures of their portfolio holdings on their websites daily before the opening of regular trading sessions.
This disclosure is necessary to facilitate the arbitrage mechanism that generally keeps the market prices of an ETF’s shares at or near the net asset value of those shares. The information required to disclose the portfolio holdings consists of the ticker symbol, CUSIP or other identifier, description of the holding, quantity held, and percentage weight of the holding in the portfolio.
The SEC staff noted that some ETFs describe their holdings of foreign currency positions simply as “cash” for purposes of their daily portfolio holdings disclosure on their websites. However, the staff believes that such a description is insufficient to allow market participants to distinguish between an ETF’s holdings of U.S. dollars and other currencies to assess the values of the ETF’s holdings throughout the day for arbitrage purposes. As a result, the staff indicated that ETFs should identify the specific non-U.S. currencies they hold to comply with the disclosure requirement for daily portfolio holdings.
