SEC lifts moratorium on actively managed ETFs' use of derivatives; moratorium continues for leveraged ETFs

Kurt Decko (Partner at K&L Gates LLP, San Francisco, California, USA)
Stacy Fuller (Partner at K&L Gates LLP, Washington, District of Columbia, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Publication date: 28 June 2013



The purpose of this paper is to explain the announcement and no‐action letter of December 11, 2012 from the Securities and Exchange Commission (“SEC”) Division of Investment Management lifting the moratorium on the use of derivatives by actively managed exchange‐traded funds (ETFs) but continuing the moratorium on use of derivatives by leveraged ETFs.


The paper explains the background, including the moratorium that went into effect as the SEC conducted a review of the use of derivatives by mutual funds, ETFs and other investment companies; the lifting of the moratorium; two representations ETFs that propose to use derivatives must make in their exemptive applications to the SEC; the implications for ETFs that make those representations; and the next steps for ETFs currently in the exemptive applications process.


While it does not mean the end of the SEC staff's review of derivative usage by ETFs generally, the lifting of the moratorium is a welcome development that restores actively managed ETFs' ability to compete largely on an equal footing with other vehicles in many investment strategies.

Practical implications

While the representations do not appear to impose substantive new disclosure requirements for ETFs, the difficulty, if any, could be that these representations will now be required by the terms of the exemptive relief on which they rely for all their operations.


The paper provides practical advice from experienced financial services lawyers.



Decko, K. and Fuller, S. (2013), "SEC lifts moratorium on actively managed ETFs' use of derivatives; moratorium continues for leveraged ETFs", Journal of Investment Compliance, Vol. 14 No. 2, pp. 28-31.

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