Skip to main content

Staff statement regarding the risk legend used by non-transparent exchange-traded funds operating in reliance of an exemptive order under the Investment Company Act of 1940

Division of Investment Management Staff

March 29, 2023

To date, the Commission has granted exemptive relief to a number of sponsors to operate actively managed ETFs that do not provide daily portfolio transparency (non-transparent ETFs).[1] Under the terms of its exemptive relief, each non-transparent ETF uses in its prospectus, fund website and any marketing materials a risk legend (“Risk Legend”) to highlight for investors the differences between the non-transparent ETF and fully transparent actively managed ETFs as well as certain costs and risks unique to non-transparent ETFs.

The exemptive orders state that “unless otherwise requested by the staff of the Commission,” each non-transparent ETF must use the specific Risk Legend.[2] The staff has become aware of potential space limitations in certain digital advertisements (e.g., small banner ads) that make it impracticable to use the legend as worded and formatted in the exemptive orders. Therefore, the staff, pursuant to the exemptive orders, requests that, in digital advertisements, non-transparent ETFs use either the text and formatting of the Risk Legend as set forth in their exemptive order or the following text and formatting (see bolding below without bullets):[3]

This ETF is different from traditional ETFs – traditional ETFs tell the public what assets they hold each day; this ETF will not. This may create additional risks. For example, since this ETF provides less information to traders, they may charge you more money to trade this ETF’s shares. Also, the price you pay to buy or sell ETF shares on an exchange may not match the value of the ETF’s portfolio. These risks may be even greater in bad or uncertain markets. See the ETF prospectus for more information.

[1] See, e.g., T. Rowe Price Associates, Inc. and T. Rowe Price Equity Series, Inc., Investment Company Act Release Nos. 33685 (Nov. 14, 2019) (notice) (“T.Rowe Notice”) and 33713 (Dec. 10, 2019) (order); Fidelity Beach Street Trust, et al., Investment Company Act Release Nos. 33683 (Nov. 14, 2019) (notice) and 33712 (Dec. 10, 2019) (order); Natixis ETF Trust II, et al., Investment Company Act Release Nos. 33684 (Nov. 14, 2019) (notice) and 33711 (Dec. 10, 2019) (order); Blue Tractor ETF Trust and Blue Tractor Group, LLC, Investment Company Act Release Nos. 33682 (Nov. 14, 2019) (notice) and 33710 (Dec. 10, 2019) (order); Invesco Capital Management LLC, et al., Investment Company Act Release Nos. 34087 (Nov. 6, 2020) (notice) and 34127 (Dec. 2, 2020) (order). See also, e.g., Precidian ETFs Trust, et al., Investment Company Act Release Nos. 33440 (Apr. 8, 2019) (notice) and 33477 (May 20, 2019) (order). This IM staff statement also applies to future non-transparent ETF orders that include the same Risk Legend (as defined below) requirement.

[2] See, e.g., T.Rowe Notice at 12.

[3] The exemptive orders also contain certain requirements regarding the placement of the Risk Legend. See, e.g., id at 12. Nothing herein is intended to alter these requirements.

Return to Top