March 5, 2002

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: SEC Concept Release: Actively Managed Exchange-Traded Funds
(Release No. IC-25258; File No. S7-20-01)

Dear Mr. Katz:

The American Stock Exchange LLC ("Amex" or "Exchange") appreciates the opportunity to comment on the Securities and Exchange Commission's ("Commission") Concept Release regarding issues related to actively managed exchange traded funds ("ETFs"). As the world's leading marketplace for listing and trading index-based ETFs,1 the Amex welcomes the Commission's effort to identify for consideration the key issues arising from actively managed ETFs. Actively managed ETFs have the potential to provide investors with benefits similar to those of index-based ETFs, including lower expense ratios than their traditional mutual fund counterparts, the flexibility of intra-day exchange trading, and the convenience of purchasing and holding a variety of funds through a single brokerage account. We believe the Commission has taken the right approach by seeking to stimulate discussion of the issues that will need to be explored in the context of actively managed ETFs, while not attempting to limit its consideration of potential ETFs or proceed with any specific or general rulemaking. We firmly believe it is imperative that each specific application for exemptive relief be considered on its own merits based upon the particular fund's investment objectives and policies, the representations in its exemptive application and prospectus, and its strategy for providing for an appropriate level of transparency and efficient secondary market pricing, as well as other factors. Innovation occurs on a product specific basis (i.e. for a particular fund), not by product category (i.e. all actively managed funds), and any effort to make rules on a product category basis would only slow the introduction of product into the marketplace and thereby stifle competition.

We note that this case-by-case approach is essentially the process by which existing ETFs have come to market, and in fact the Commission's review process in considering applications by ETF advisers or sponsors for required exemptions under the Investment Company Act of 1940 ("1940 Act") has worked well to date in identifying the special characteristics of particular ETFs that warrant exemptions under the 1940 Act or additional prospectus disclosure. This process has permitted the Commission to deal effectively with all ETF models to date on a case-by-case basis. Continuing the practice for actively managed ETFs will enhance competition in ETF development without unnecessarily delaying an application by considering it as part of an overall actively managed category, some members of which may have very different concerns. As the Commission's staff subsequently gains experience with various product structures, it then can extract from these products key characteristics which can then serve as the basis for a more expedited approval/exemption process. This already is the case for existing index-based ETFs and has been effective. In this way the Commission's initiative will help to ensure that each prospective product in this "next generation" of ETFs will be subject to sound and comprehensive regulation under the securities laws, with full disclosure to investors of their unique characteristics and risks, while recognizing the potential benefits to investors of encouraging innovation by, and increased competition among, ETF providers.

As an initial matter, we would point out that the techniques used to manage an indexed portfolio and an actively managed portfolio are not mutually exclusive. Indeed, many index funds, both ETFs and traditional mutual funds, exercise significant judgment in determining which securities to hold when tracking a broad market index such as the Wilshire 5000 Total Stock Market Index or an international index such as one of the MSCI country indices. These funds also may use relative value or other strategies designed to capture incremental performance or cost savings that will help offset some or all of the operating expenses of the particular fund. So while it may be useful for purposes of discussion to group a fund into either the active or passive "category", we do not believe it is useful to use this distinction as a frame of reference from which to consider an application for exemptive relief. As stated earlier, we believe that each product must be considered purely on the basis of its specific circumstances, including investment objective, investment techniques, disclosure policy, and other matters. In this regard and in response to a specific question from the Commission in the Concept Release, we believe that the term "actively managed ETFs" should not extend to variations on index-based ETFs - such as leveraged ETFs based on a stock index, or ETFs that aim to perform at a positive or negative multiple to the index. More importantly, we believe that consideration of these products should not be delayed or affected by general concerns about actively managed ETFs. While, in some instances, these product variations may require additional investor suitability analysis by broker-dealers, or additional disclosure of the characteristics and risks, these funds will function in fundamentally the same way as currently-traded ETFs in terms of portfolio management, arbitrage opportunities and portfolio transparency.

We recognize that portfolio transparency and the ability to hedge ETF positions efficiently are important areas for Commission consideration. But we are confident that industry participants will develop - or already have developed - the means of addressing issues raised by the Commission in this area. Several of these developments are discussed below in the Exchange's responses to specific questions raised in the Concept Release.

The issues identified by the Commission should not overshadow the market benefits achieved through the development, introduction and trading of ETFs. As early as 1992, in approving the Exchange's Rule 19b-4 filing under the Securities Exchange Act of 1934 for Standard and Poor's Depositary Receipts®, or SPDRs®, based on the S&P 500® Index, the Commission found that such products provided a number of benefits to investors and to the markets for the underlying index securities.2 These benefits include, but are not limited to:

We believe actively managed ETFs will expand the benefits of index-based ETFs to investors by providing investors with the added flexibility and broader investment choices currently associated with actively managed mutual funds. In addition, we maintain that extending the current ETF structure will prompt greater innovation and development of new products, benefiting both investors and the financial marketplace.

The Exchange's responses to specific questions raised in the Concept Release are set forth in the attached Appendix.

Thank you for this opportunity to comment on the Concept Release. If there are any questions or comments regarding this letter and related matters please contact Cliff Weber, Senior Vice President at 212-306-2154.


/s/ Michael J. Ryan, Jr.
Michael J. Ryan, Jr.
Executive Vice President and General Counsel

1 Amex currently lists 100 ETFs, including four unit investment trusts - SPDRs®; MidCap SPDRsTM; DIAMONDS®; and Nasdaq 100® Index Tracking StockTM; and 96 ETFs organized as open end management investment companies, including iSharesTM; VIPERSTM; Select Sector SPDRs®; and StreetTracks.TM PDR Services LLC, an Amex subsidiary, is sponsor to SPDRs, MidCap SPDRs and DIAMONDS.
2 The first ETF approved for trading was the SPDR Trust based on the Standard and Poor's 500 Composite Stock Price Index.
3 See, e.g. Release No. 34-31591 (December 11, 1992) (approving Amex listing of SPDRs); Release No. 34-35534 (March 24, 1995) (approving Amex listing of MidCap SPDRs).


Questions Raised in SEC Concept Release: Actively Managed Exchange-Traded Funds [Release No. IC-25258; File No. S7-20-01] and Responses of The American Stock Exchange LLC ("Amex" or "Exchange").

For convenience, we have sequentially numbered the questions from the Release.

Concept Release III. The Concept of an Actively Managed ETF

1. How are actively managed ETFs likely to be structured, managed and operated?

Actively managed ETFs will likely be structured in a manner similar to existing index-based ETFs.

2. How will investors use, and benefit from, actively managed ETFs?

The growth over the last few years in index-based ETFs reflects investors' growing understanding and acceptance of the benefits and features that ETFs offer over traditional index-based open-end management investment companies, or mutual funds.1 Since January, 1993 over 100 ETFs have been introduced that now have over $80 billion in assets. A research study conducted by Financial Research Corporation on "The Future of Exchange Traded Funds" found that the primary reasons for investor interest in ETFs are tax efficiency, trading flexibility, lower expense ratios, diversification and continuous pricing.2 One need only compare the growth rate of index-based ETFs to that of traditional index mutual funds to demonstrate investor demand for the more flexible ETF product.

Actively managed ETFs could provide many of the same features and benefits as the existing ETFs. For example, actively managed ETFs that allow in-kind creation and redemption may experience increased tax efficiency over traditional actively managed mutual funds.

Actively managed ETFs will provide significant benefits to investors by expanding competition within the industry and providing additional choices for investors. They are likely to be used in a variety of ways, from investing 401k plans and wrap accounts, to trading vehicles for a particular universe of stocks or style of investing.

3. Would the exemptive relief that the Commission has granted to index-based ETFs be appropriate for actively managed ETFs?

Each application will have to be examined individually, based on its own unique circumstances. However, in general we would expect similar relief, although it is possible that additional relief may be necessary for some actively managed ETFs, as well as different representations and conditions in the exemptive application and the Commission's order for a particular fund's management and operations.

4. Are there any new regulatory concerns that might arise in connection with actively managed ETFs?

Possibly, although this is difficult to predict without actual experience. Each ETF exemptive application will have to be examined individually based on its own unique circumstances. We do not believe however, that there are any concerns or issues that cannot be dealt with by Commission's staff in the exemptive process, through prospectus disclosure and through Commission oversight.

Concept Release IV. Areas for Comment

A. Index-Based vs. Actively Managed ETFs

5. For purposes of the Concept Release, the Commission assumed that any ETF that would not seek to track the performance of a market index by either replicating or sampling the index securities in its portfolio would be an actively managed ETF. Is this an appropriate way to distinguish between index-based and actively managed ETFs?

The Commission has assumed that any ETF that does not seek to track the performance of a market index by either replicating or sampling the index securities in its portfolio would be actively managed. This would include leveraged and short index funds that seek to achieve a multiple (or the reverse) of the performance of a market index. We do not believe that the leveraged and short index funds should be considered active. These funds operate in virtually the same manner as ordinary index funds. Rather, investment objective and strategy, the degree of adviser discretion and flexibility and perhaps the contents of the portfolio, are key in determining whether a fund is actively managed.

6. Are there any reasons to distinguish between different types of actively managed ETFs?

If so, we think these distinctions will be primarily with respect to disclosure, or from a sales and marketing perspective, as well as based on a fund's investment strategy and methodology. However, this will be consistent with the way different types of actively managed mutual funds and UITs are currently distinguished. Active management is a broad description. In many cases active management involves an advisor making constant discretionary decisions on the investment merits of a specific security, sector, country, currency etc. In other cases active management may be a "rules-based" or "top picks" investment process, with very little discretion. "Rules-based" means a defined set of guidelines for the inclusion and deletion of securities in a portfolio, consistently applied, and made publicly available. "Top picks" is used here to describe well-defined and publicized lists of securities published by securities firms, which form the basis for packaged or basket products. Some active ETFs that are "rules-based" or "top picks" portfolios may disclose portfolio composition files on a frequency that is consistent with index-based ETFs, and are likely to operate the same way. Creation and redemption features may vary; some actively managed ETFs may require cash creations and/or redemptions. As noted in the Concept Release, ETFs issue shares only in large aggregations or blocks, called "Creation Units". An investor may purchase a Creation Unit with a "Portfolio Deposit" equal in value to the aggregate NAV of the aggregate ETF shares in the Creation Unit. The Portfolio Deposit generally consists of a basket of securities that mirrors the composition of the ETF's portfolio, and usually also includes a small amount of cash to account for the difference between the value of the basket of securities and the NAV of the ETF shares. ETF shares are not redeemable from the ETF except in Creation Unit aggregations. An investor presents a Creation Unit to the ETF for redemption, and receives a "Redemption Basket". The Redemption Basket usually contains the same securities in the Portfolio Deposit, along with a small amount of cash. However, some actively managed ETFs could have different creation and redemption baskets, i.e. the composition of the Portfolio Deposit would differ from the Redemption Basket.

7. If there are different types of actively managed ETFs, are there any reasons to regulate the various types differently?

This question cannot be answered unless specific types of actively managed ETFs are modeled in terms of their operation and then compared. Generally, any such reasons should be allowed to emerge on a case-by-case basis through applications for exemption by specific funds.

Concept Release IV. Areas for Comment
B. Operational Issues Relating to Actively-Managed ETFs

8. Is it important that ETFs be designed to enable arbitrage and thereby minimize the probability that ETF shares will trade at a large premium or discount?

Yes. The ability to arbitrage and thereby limit premia/discounts in secondary market prices is a significant factor in the acceptance and usage of ETFs by investors. The ability to arbitrage enhances market liquidity, efficiency and price discovery and would be an important factor for all investors using actively managed ETFs. It is in the interest of an actively managed ETF sponsor to work to insure that its product is not susceptible to significant premia or discounts for any sustained period of time. However, what is an acceptable level of premium/discount must be judged in the context of the particular exemptive application and ETF.

An important element in achieving a successful product is the availability of and appropriate disclosure of current information as to per-share portfolio value of the ETF throughout the trading day. In order to provide information to the market, the Exchange disseminates every 15 seconds over Network B of the Consolidated Tape Association an "indicative portfolio value" reflecting the fluctuating intra-day value for each ETF listed on the Exchange. [In the case of the replicated UIT ETFs, this indicative portfolio value is based on the applicable index.] The indicative portfolio value is calculated by a securities market information provider, and disseminated on a per-share basis every 15 seconds during the regular Amex trading hours of 9:30 a.m. to 4:00 p.m. Eastern time. The equity securities included in the indicative portfolio value generally reflect the same market capitalization weighing as the Portfolio Deposit which is part of the Creation Unit. This information is very important to the market in terms of achieving efficient pricing, and arbitrage.

9. In considering whether to grant the exemptive relief necessary to permit actively managed ETFs, should we be concerned about whether their shares will trade at a significant premium or discount?

Yes. However, actively managed ETFs, like index-based ETFs, should not experience significant "sustained" premia/discounts due to the open-end structure which allows shares outstanding to increase and decrease upon demand, and due to the availability of current market information such as indicative portfolio value throughout the trading day. The iShares MSCI ETFs (formerly known as WEBS) provide the best evidence in assessing the potential for significant and sustained premia/discounts in actively managed ETFs. These products, unlike SPDRs, MidCap SPDRs, DIAMONDS, and QQQs, are optimized index portfolios investing in foreign markets which are often closed while the ETF trades in the U.S. In the fall of 1997, after the start of the Thai currency crisis, the WEBS Hong Kong ETF experienced a large increase in the number of buy orders; this, combined with the underlying market being closed and uncertainty as to the levels the Hong Kong market would open caused the WEBS Hong Kong ETF to experience a premium greater than 20% to the last NAV. However, once the underlying market reopened and purchaser of Creation Units could be initiated, the WEBS Hong Kong ETF opened the next day with a reversal of such premium.

We note that if certain actively managed ETFs were to trade at a significant sustained discount they likely would not survive due to their open-end nature, because investors would buy the ETF shares at far less than NAV and redeem Creation Units, obtaining NAV and causing the ETF to shrink below an economic level for its sponsor.

Concept Release IV. Areas to Comment

B. Operational Issues Relating to Actively Managed Funds

1. Transparency of an ETFs Portfolio

10. What level of transparency in portfolio holdings is necessary to allow for effective arbitrage activity in the shares of an actively managed ETF?

The level of transparency will vary from product to product. For example, "top picks" and "rules-based" portfolios can be expected to have a higher level of transparency, because there would be wide dissemination of the underlying lists of securities from which the fund portfolio is selected, as well as the investment methodology and strategy behind the lists. This level of transparency would be consistent with that of existing ETFs, and the traditional retail UITs that are assembled from rules based or top picks lists or portfolios. Such actively managed ETFs should provide essentially the same level of effective arbitrage that current index-based ETFs allow. Other ETFs may reveal less specific information about portfolio holdings because of their portfolio investment strategies. In these cases, there must be a pricing mechanism available which will enable the market and investors to value the ETF in some other way. In any instance, the structure chosen and resulting level of transparency will have to be fully disclosed to investors in terms of potential risks in the ETF's prospectus.

11. Should an actively managed ETF be required to disclose the full contents of its portfolio?

Not necessarily, so long as there is sufficient market information available to value the portfolio or a Creation Unit (or if different, the Redemption Basket) on an intra-day basis so as to facilitate secondary market trading and hedging. Currently, ETFs are priced off their indicative portfolio value on a per-share basis published through the Exchange. (See response to Question 8 above.) Each ETF should be allowed to petition the Commission for exemptive relief based on its particular merits and structure, and intended disclosure.

12. Is it sufficient for an actively managed ETF to disclose only a sample of its portfolio or the general characteristics of its portfolio?

What is sufficient and appropriate disclosure for an ETF will have to be determined in the context of its particular exemptive application and appropriately disclosed in its prospectus.

However, we note that actual portfolio detail need not be disseminated so long as an indicative portfolio value of an ETF on a per-share basis is made available throughout the trading day. An important "test" will be the issuer's ability to represent that arbitrage will be successful and that there is unlikely to be significant deviation between indicative portfolio values and market prices throughout the trading day.

13. Can effective arbitrage occur without any disclosure of the specific securities in an ETFs portfolio (i.e., arbitrage that is based strictly on the NAV and market price of ETF shares)?

Whether effective arbitrage can occur in this instance will have to be determined in the context of the specific proposed ETF. Generally, however, we believe that effective arbitrage can occur without disclosure of the specific portfolio securities. For example, various modeling strategies could be developed that would permit pricing of a portfolio without disclosure of its contents. These proprietary models will need to be tested, and, of course, their basis and effectiveness understood and disclosed before successful market application. However, the models should provide a mechanism for determining fair intraday values, and creating hedging strategies for specialists and market makers.3

14. How frequently would the investment adviser of an actively managed ETF need to disclose the portfolio securities or characteristics of the ETF portfolio?

Again, the frequency and degree of disclosure will have to be reviewed in the context of the proposed ETF. Generally, however, we see no reason why such value should not be available daily, as with the index-based ETFs, along with the information as to the value and composition of a Creation Unit and if different, any Redemption Basket. This creation redemption information is currently determined after NAV is set at the end of the market day, and made available through the facilities of the National Securities Clearing Corporation ("NSCC") for purchasers and redeemers through Authorized Participants the morning of the next business day. Also, it is important that the indicative portfolio value should be disseminated throughout the trading day by the Exchange, so that market prices can be evaluated constantly during market hours by specialists, arbitragers and other Authorized Participants and investors.

15. Would an investment adviser need to disclose intra-day changes in the portfolio of an actively managed ETF?

We don't believe so.

16. Would there be a need to permit or require the specified Portfolio Deposit or Redemption Basket to change during the day to reflect changes in the ETF's portfolio?

We don't believe so. However, this might change if the market moves to same-day settlement or if NAV is determined on a more frequent basis.

17. If so, what type of notice would be necessary to inform investors of any changes to the Portfolio Deposit or Redemption Basket in the course of a day?

As indicated above, there is no need to permit or require intra-day changes in the current market settlement environment, and therefore there would not be changes to the Portfolio Deposit or Redemption Basket.

18. Are intra-day values of the Portfolio Deposit meaningful to investors if investors do not know the contents of the ETF portfolio?

Yes, intra-day values are an important indication for the retail investor in determining that he is paying a "fair" price for the ETF share in the secondary market (i.e., close to the value of the underlying ETF portfolio). Note that the source of intra-day values for a retail investor generally will be the investor's brokerage firm or some other market source. From a retail perspective many investors do not have real-time access to information about the portfolio securities and their weighting in the index-based ETFs. However, we believe that intra-day disclosure of the indicative portfolio value is a factor in the ability of the investor to judge approximately the value of the ETF.

19. Would frequent disclosure of portfolio holdings lead to "front running" of the ETF portfolio, where other investors would trade ahead of the ETF and the Creation Unit purchasers who must assemble Portfolio Deposits?

By definition, disclosure of portfolio holdings would be of securities already in the fund. Thus "front running", as a technical matter, would not occur. However, the availability of portfolio information may signal the portfolio manager's program of buying or selling a particular security or group of securities and some investors may trade on this perceived buy or sell signal. It is possible that such trades would occur ahead of ETF and Creation Unit purchasers who must assemble Portfolio Deposits. However, it may be unlikely for the person or persons seeking to trade in advance of the portfolio manager to know how strong of a continued interest the portfolio manager may have in buying or selling a security. This differs from an index fund where changes to holdings (both names and weights) are pre-announced. In any case, investor trading would be based on publicly available information just as with other investment vehicles that report trades or portfolio information, only to have outside investors follow the reported data.

20. Would frequent disclosure of portfolio holdings lead to "free riding," where other investors would mirror the investment strategies of an actively managed ETF while the ETF investors pay the advisory fees?

Perhaps, just as with the published portfolios of mutual funds, closed-end funds, UITs, and HOLDRS, and the public information available about insider trades, and significant investor activity (from Form 13D and 13F filings) in the equity market. However it may not be cost effective or productive for an investor to "free-ride", due to the large number of trades involved, pricing variability and the required capital. In addition, "free-riding," should it occur, is unlikely to be significant enough to impact the market or the ETF. We also note that the pricing methodologies currently under development (see response to Question 13 above) would ameliorate this issue for the ETFs for which this is a serious concern.

21. Would an investment adviser to an actively managed ETF face a conflict between maximizing performance and facilitating arbitrage by informing the marketplace of the adviser's investment strategies (e.g., would there be a reluctance on the part of a portfolio manager to make frequent adjustments in the portfolio because of the possible impact on the arbitrage mechanism)?

This will require a case-by-case analysis, depending on the particular fund involved. Although an investment adviser could be placed in the position of choosing between performance maximization or investment strategy disclosure because a potential conflict could arise if an active ETF portfolio manager is required to disclose the entire portfolio composition, we believe that potential issuers of actively managed ETFs will be cognizant of the potential conflict and would not seek to issue ETFs where this would be an issue or would seek to manage the issue of portfolio disclosure through only disclosing the portfolio characteristics. The potential conflict could be greatly minimized if the ETF relied upon a model that would permit the pricing of a portfolio without disclosure of its contents. (See response to Question 13 above.)

Concept Release IV. Areas to Comment

B. Operational Issues Relating to Actively Managed ETFs

2. Liquidity of Securities in an ETFs Portfolio

22. Should actively managed ETFs be limited to certain investment objectives or policies that are designed to ensure that the portfolio securities are sufficiently liquid to permit effective arbitrage?

Actively managed ETFs as a group should not be regulated so as to limit the possible range of investment objectives or policies. Ultimately it is in the interest of the sponsor and investment adviser to provide for effective arbitrage opportunities. It is unlikely that an actively managed ETF sponsor would be able to convince the critical market participants such as specialists, market makers, arbitragers and other Authorized Participants to support a product that contained illiquid securities to a degree that would affect the liquidity of the ETF, making it difficult to price, trade and hedge, ultimately leading to its failure in the marketplace.

23. If so, what types of parameters are necessary to ensure that an ETF invests in securities that can be readily purchased or sold by arbitrageurs?

This issue should be considered on a case-by-case basis in light of a particular fund's investment objective and strategy, as exemptive applications to launch ETFs are considered by the Commission's staff.

24. Should an actively managed ETF be permitted to invest in securities other than equity securities?

This should be considered in light of a particular proposed ETF, but generally the actively managed ETF should be permitted to invest in the same range of securities and market instruments as is allowed index-based ETFs and actively managed traditional mutual funds.

25. Should an actively managed ETF be permitted to invest in any illiquid securities or securities that could not be included in a Portfolio Deposit or Redemption Basket?

Actively managed ETFs should not be precluded from investing in illiquid securities consistent with existing regulation for open-end management investment companies, which have the ability to invest in illiquid securities, up to the limits of 15% of net assets. Of course, appropriate disclosure would need to be made. See Investment Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992). Again, this is an issue that can be considered on a case-by-case basis, and which will be subject to the market constraints discussed in the answer to Question 22 above.

26. Should an actively managed ETF be prohibited from investing in securities that are not registered under section 12 of the Exchange Act?

No, as described in the response to question #25, there should be no prohibition on a particular class of securities. Rather, the types of securities in the anticipated ETF portfolio and the investment strategy of the ETF should be considered as part of the exemptive process.

27. Should an actively managed ETF be prohibited from investing in securities that are part of an "unsold allotment" within the meaning of section 4(3)(C) of the Securities Act?

We do not believe there should be a blanket prohibition. Instead, we believe existing rules and policies should apply. Of course, if there is a particular concern in the context of a proposed ETF appropriate conditions may be imposed by the Commission in the exemptive relief for the ETF.

28. Is it necessary for an actively managed ETF to create and redeem Creation Units through in-kind transactions (rather than cash transactions)?

No. Many of the current index-based ETFs allow for the potential to create and redeem for cash. Actively managed ETF investments in certain securities, such as foreign markets, may require portfolio creations to be done on a cash basis. This is currently the case with index-based ETFs for the South Korean, Taiwan and Brazilian markets where local securities regulations do not permit in-kind creation or redemption. Ultimately it should be the ETF sponsor's or investment adviser's decision. However, we note that in-kind redemptions would tend to increase the tax efficiency of the actively managed ETF portfolio.

29. Would there be any consequences to permitting cash purchases and redemptions of Creation Units for an actively managed ETF?

A primary consequence would be to the tax efficiency of the actively managed ETF portfolio as compared with index-based ETFs. Advantages of in-kind redemptions from a tax perspective would not be available, thereby generating transaction costs. As with a traditional open-end mutual fund, there would be some additional activity by the investment adviser/portfolio manager in investing the cash, or selling securities. However, the costs to ongoing shareholders of an actively managed ETF could be minimized through increasing the transaction fee currently imposed on creations and redemptions.

30. Could the cash component of a Portfolio Deposit or Redemption Basket be used to account for portfolio securities that could not be included in a Portfolio Deposit or Redemption Basket?

Yes, as is currently the case with index-based ETFs, when a security cannot be included in the portfolio for one reason or another.

Concept Release. IV Areas for Comment

B. Operational Issues Relating to Actively Managed ETFs

3. Other Operational Issues

31. What other issues could cause an actively managed ETF to operate differently than an index-based ETF?

We are not currently aware of other issues that might cause differences in the operation of actively managed ETFs, other than adaptation to an environment where values are based upon a pricing model rather than portfolio transparency.

32. Would the clearance and settlement procedures for Creation Unit transactions for actively managed ETFs be the same as for index-based ETFs?

As far as we can tell, yes, as long as the clearance and settlement process occurs through NSCC, the Government Securities Clearing Corporation, the Futures Clearing Corporation and the Depository Trust Corporation or other clearing organizations or firms, and there is a process to cover delivery failures.

33. Are there other operational issues that could affect the willingness of investors to purchase shares of an actively managed ETF either on the secondary market or in Creation Units from the ETF?

We are not aware of any operational issues for actively managed ETFs that would deter investors from purchases of ETF shares, on the secondary market or from the ETF in Creation Units.

34. Would significant deviations between the market price of shares of an actively managed ETF and the NAV of the ETF shares compromise the operations of the ETF?

Other than the potential impact on product appeal and ability to gather assets, we do not expect the presence of significant premiums or discounts in and of themselves to result in operational issues.

Concept Release IV. Areas for Comment

C. Uses, Benefits and Risks of Actively Managed ETFs

35. What are the most important uses and benefits of index-based ETFs?

The Exchange believes that the inherent benefits or advantages for investors in using ETFs include, but are not limited to, lower trading costs versus buying the underlying portfolio, hedging capabilities, tax efficiencies, ability to short, and the development of additional investment strategies using ETFs.

The uses and benefits of ETFs are clearly evidenced by the tremendous growth in ETF trading volumes, largely attributed to the availability of real time pricing and intra-day, indicative portfolio value capability. For example, the Nasdaq-100 Tracking Stock (QQQ) is consistently among the most actively traded equities based on both volume and notional value in the domestic market.

36. Have index-based ETFs encountered any problems of which the Commission should be aware in evaluating future ETF proposals?

No, not that we are aware of. In fact, studies on bid-asked spreads, one of the indicators of successful functionality in ETFs, tend to show market consistency even in times of high volatility. For example, in instances of instability in Malaysia, the iShares MSCI Malaysia ETFs (formerly WEBS) continued to trade although the Malaysian government instituted currency controls which, in effect, inhibited creations and redemptions for over a year. The iShares MSCI Malaysia did not experience discounts as significant as the Malaysian closed-end funds. This may have resulted from investors sentiments that NAVs and share prices would realign when currency controls were lifted.

37. Are investors confused about the differences between ETFs and mutual funds?

We do not believe that investors that use the products are confused about the differences between ETFs and traditional mutual funds, because there is detailed disclosure in each ETF prospectus and/or product description. However, not all investors are aware of ETFs, their features and benefits. Investor education regarding ETFs is an ongoing process and we believe that ETF issuers whether index-linked or actively managed have a vested interest in providing comprehensive education for both retail and institutional investors.

We recently commissioned a study by Harris Yankelovich in the effort to better understand retail investor knowledge, perception, attitudes on a full range of investment products with a specific focus on ETFs. The study found that although both retail investor awareness and usage of ETFs trailed traditional investment products such as CD's, regular savings accounts, stocks, bonds and mutual funds, when presented with comprehensive information, retail investors are able to understand the difference in features and benefits of ETFs and traditional mutual funds. The Harris study measured retail investor response to the following ETF concept statement: "Exchange Traded Funds, or ETFs, have the advantages of both stocks and mutual funds combined. Each ETF you buy is a share in entire basket of stocks that comprise a given index - for example, the S&P 500 - just like a traditional index funds. And with ETFs, the management fees are generally very low. You buy and sell ETFs the same way you buy stocks, paying the usual commissions." The study found that fifty-three percent of the respondents were either extremely, very or somewhat likely to have interest in investing in or investigating further based on their statement. When the study respondents were given more detailed information on ETFs, the number of extremely, very and somewhat likely respondents increased by twenty percent. The Harris study also found that seventeen percent of respondents indicated ETF ownership and seventy-six percent indicated awareness.

Although the awareness, usage and confidence levels in ETFs have risen dramatically in the last few years, but there is a need for continued education. Sources of comprehensive information on ETFs continue to expand beyond the issuers of ETFs and exchanges listing ETFs to include websites such as and, which provide retail investors with additional resources to learn about ETFs and to understand the differences from traditional mutual funds.

The increased range of investment objectives available through the ETF product structure combined with ETF features such as low costs, tax efficiency and transparency has resulted in ETF's increased usage in fee based ("wrap") programs offered through various financial intermediaries. Some firms like A.G. Edwards have begun to offer investors ETF specific "wrap" accounts. ETF popularity with investment advisers, pension funds, hedge funds and consultants grows as the features of ETFs are understood but most importantly as the benefits described by ETF issuers are realized. We believe that over time continued education on ETF features and benefits will broaden investor usage.

38. What measures could be taken to address any potential investor confusion?

Investor knowledge is generally drawn from research of different investment products and then a comparison of those choices. Allowing comparisons of ETF and mutual fund characteristics and benefits in the marketplace will ultimately help the investor. Additional sponsors and products will also increase competition, and help to foster investor knowledge.

39. Does trading in ETF shares have any relation to market volatility, and if so, in what ways?

To date we believe that ETFs generally follow moves in their underlying securities, and do not add to or reduce volatility. Another way to say this is that ETFs reflect market volatility. We do not believe that the trading of ETF shares cause or contribute to market volatility. We note, however, that because ETFs have real benefit for hedgers, periods of volatility may also result in increased trading activity for ETFs.

40. Has the introduction of ETFs generally led to any undesirable consequences for investors?

No, not to the Exchange's knowledge.

41. With respect to the potential for actively managed ETFs, should investors expect that any mutual fund could be transformed into an ETF, or would only certain types of actively managed portfolios lend themselves to the ETF structure?

While the potential of actively traded ETFs is wide ranging, they will reach the market on an evolving basis. It is unlikely at the present time that a fund with a great deal of investment flexibility, and/or limited liquidity in its underlying securities, and significant portfolio turnover and trading would be an ETF candidate. In the longer term there is, however, the potential for this type of fund to become an ETF.

42. Would closed-end funds seek to convert into actively managed ETFs as a possible means of addressing discounts in share price?

For certain closed-end funds, the potential conversion to ETFs represents an option for fund managers and a potential benefit for investors, as the ETF structure would tend to close the premium/discount pricing which affects many closed-end funds. There are closed-end funds which may not be interested in a conversion, however, due to such factors such as the illiquidity of fund holdings or the long-term investment nature of the fund's objective.

43. Why would an actively managed ETF be a desirable alternative to a mutual fund or closed-end fund that pursues the same investment objectives or strategies?

The ETF structure offers an alternative distribution system to issuers, which, if successful, can help increase assets and lower expense ratios. Also, real time pricing and intra-day trading at market prices would be useful to both retail and institutional investors. Costs of operations could also decrease because of a significant reduction in transfer agent activity. In addition, there may also be tax advantages due to in kind redemptions.

44. As an investment and trading vehicle, what would be the principal uses of actively managed ETFs by investors?

The ability of the investor to access a desired active manager or management style while retaining the real time and intra-day trading benefits of the ETF structure. This is expected to provide investors with better risk management, hedging and pricing capability tools.

45. Would an actively managed ETF serve primarily as a short-term trading vehicle?

Not necessarily. The lesson learned in index-based ETFs is that they appeal to a broad range of investors. Though intra-day capability is imperative to the day trader there is also benefit for risk management to the long term investor. While the tax efficiency of an actively managed ETF versus an index-based ETF may be diminished, the investor may still be shielded from the effects of redemptions by other investors.

46. Could an actively managed ETF be used to gain exposure to an asset category in a manner similar to index-based ETFs?

Yes, for example investors could seek exposure to a value, growth or blended style.

47. Would an actively managed ETF have any role in hedging strategies?

Possibly. For example, an investor may find that a particular actively managed ETF more closely tracks his securities holdings, and therefore may be a more effective hedge.

48. Would an actively managed ETF appeal more to individual investors or institutional investors?

This will become clear only when actively managed ETFs reach the market.

49. What would be the principal benefits of actively managed ETFs?

The principal benefits of actively managed ETFs will include:

50. Would an actively managed ETF possess the low expenses and tax efficiency associated with existing ETFs?

This must be reviewed on a case by case basis for each proposed ETF. However, actively managed ETFs should have at least slightly lower expenses than their mutual fund counterparts. The transfer agent expenses of ETFs can be much lower than those of traditional mutual funds. Transaction costs are minimized through the creation and redemption process, and the accompanying transaction fee. Whether management and other fees are reduced will be a decision for each ETF's adviser and board of directors.

51. Would the introduction of actively managed ETFs be detrimental to investors, and if so, how?

No, so long as the exemptive application process is used by the Commission's staff, or appropriate rules are developed, consistent with the interests of full disclosure and investor protection. Actively managed ETFs should be a benefit to investors, as they will provide competitive alternatives to other investment products.

52. Would investors be confused about the nature of actively managed ETFs?

No, provided disclosure is adequate. As with any other new investment vehicle, investor education will play a large role in the introduction of actively managed ETFs, and it is in the interests of ETF sponsors, broker-dealers and other market participants to promote investor understanding.

53. Could actively managed ETFs lead to greater market volatility?

Actively managed ETFs should have no different market impact than any other registered investment vehicle. See answer to Question 39 above.

54. Is the development of actively managed ETFs important for U.S. financial institutions to maintain a competitive position in global securities markets?

Continued ability to innovate is important in general for the U.S. financial markets. In this regard, actively managed ETF development is important for the U.S. financial industry and markets to stay on the cutting edge. Actively managed ETFs are already trading in Europe, particularly in Germany, where regulatory requirements and market dynamics may differ from the index-based ETFs traded in the US. It is essential that U.S. financial markets continue to compete with markets worldwide. Accordingly, we believe that permitting U.S. exchanges to list and trade actively managed ETFs, following the appropriate Commission exemptive relief and disclosure review, will help to ensure that U.S. investors continue to have access to the latest ETF innovations.

Concept Release IV. Areas for Comment

D. Exemptive Relief from the Investment Company Act for Actively Managed ETFs

1. Relief for ETFs to Redeem Shares in Large Aggregations Only

55. Would actively managed ETFs present any issues with respect to these exemptions that do not exist with respect to index-based ETFs?

ETFs obtain relief from the Commission to redeem shares in Creation Unit size aggregations only. In sections 4(2) and 5(a)(1) of the 1940 Act pertaining to UITs and open-end management investment companies, respectively, said investment companies are defined as issuing only redeemable securities, or offering for sale or having outstanding any redeemable security of which it is the issuer. A redeemable security is defined in section 2(a)(32) of the 1940 Act as one which entitles the holder to obtain approximately his proportionate share of the issuer's current net assets, or the cash equivalent thereof.

Existing ETFs have obtained Commission relief from these definitional sections by representing that ETF shares are redeemable in Creation Units and that the market price of Creation Units is disciplined by arbitrage opportunities which results in investors generally being able to sell shares in the secondary market at approximately NAV. As a condition of the Commission's exemptive relief, an ETF agrees that it will not be advertised or marketed as an open-end fund or mutual fund. In addition, the ETF prospectus and advertising materials must prominently disclose that ETF shares are not individually redeemable and that shares may be acquired and redeemed from the ETF in Creation Units only. Actively managed ETFs will require case-by-case consideration by the Commission, so that representations made with respect to the trading market for the proposed actively managed ETF can be considered in light of these issues.

56. Should the potential for more significant deviations between the market price of actively managed ETF shares and the NAV of the shares affect any relief requested from the definition of "redeemable security"?

Possibly. The question is what kind of deviation in market prices from NAV would be so great that relief would be inappropriate. This is an issue that will be better defined as active ETF applications are filed and considered by the Commission.

57. Are greater disclosure efforts necessary to address any potential investor confusion regarding the nature of actively managed ETFs and their shares?

It is possible that more disclosure may be necessary to address investor confusion regarding the nature of actively managed ETFs and their shares. However, we believe that any disclosure issues should be addressed by the Division of Investment Management Office of Disclosure staff in the context of reviewing each actively managed ETF registration statement under Form N-1A, and through ongoing oversight by the Commission and the NASD.

Concept Release IV. Areas for Comment

D. Exemptive Relief from the Investment Company Act for Actively Managed ETFs

2. Relief for ETFs Shares to Trade at Negotiated Prices

58. ETFs obtain relief for ETF shares to trade at negotiated prices. Section 22(d) of the 1940 Act prohibits a dealer from selling a redeemable security that is currently being offered to the public or through an underwriter except at a current public offering price described in the prospectus. Rule 22c-1 generally requires that a dealer transacting in a redeemable security do so at a price based on its NAV. ETFs thus get exemptions from the section and rule to permit secondary market trading at negotiated prices. Would actively managed ETFs present any issues with respect to these exemptions that do not exist with respect to index-based ETFs?

It is possible that actively managed ETFs will present issues in this regard. These would likely come up in the course of sponsors considering and developing their exemptive applications and the review of the applications by the Commission's staff.

59. Would the potential for more significant deviations between the market price of actively managed ETF shares and the NAV of the shares create any potential for discrimination or preferential treatment among investors purchasing and selling shares in the secondary market and those purchasing and redeeming Creation Units?

It is possible that more significant deviations between market price and NAV would create investment opportunities for arbitragers and other institutional investors in the purchase and/or redemption of Creation Units. However, such opportunities would typically result in the narrowing of spreads. This would not seem to be an issue of discrimination or preferential treatment because there would be no "intent" behind such an occurrence. It is clear, however, that disclosure to investors is critical so that trading risks are understood.

60. Would more significant deviations lead to a less orderly distribution system for actively managed ETF shares?

No, the distribution system by means of the purchase of Creation Units should not be affected by more significant deviations.

61. Are greater disclosure efforts necessary to address potential investor confusion regarding the fact that individual shares of actively managed ETFs would be sold at market price while Creation Unit aggregations of ETF shares would be redeemable at NAV?

Existing investment company disclosure standards are adequate, as are existing suitability and sales practice guidelines. Issuers and selling firms must, however, comply with the standards and guidelines, and their firm policies.

Concept Release IV. Areas for Comment

D. Exemptive Relief from the Investment Company Act for Actively Managed ETFs

3. Relief for In-Kind Transactions between an ETF and Certain Affiliates

62. Would actively managed ETFs present any issues with respect to this exemption that do not exist with respect to index-based ETFs?

The issues identified by the Commission's staff for index-based ETFs are generally applicable to actively managed ETFs. Consideration of a particular fund's exemptive application would permit identification of any additional issues that might arise.

63. If an actively managed ETF proposed to alter the contents of its Portfolio Deposit or Redemption Basket during the day to reflect changes in its portfolio, would this process introduce the potential to favor affiliated persons of the ETF?

Not any more than the existing potential which exists in all "active" mutual fund environments. The application of section 17 of the 1940 Act and the rules thereunder concerning affiliated transactions and self dealing should adequately address potential conflicts of interest. In addition, investment company and investment adviser codes of ethics for employees and affiliated persons will also serve to protect against potential favoritism.

64. If so, how should this be addressed?

Through appropriate conditions imposed on ETF applicants for exemptive relief, or through modifications of existing law, regulation and/or policy.

65. Could a 5% Affiliate or 25% Affiliate influence decisions by the investment adviser to an actively managed ETF regarding the securities in the Portfolio Deposit or Redemption Basket on a given day?

Possibly. However, the potential for such influences currently occur in a variety of circumstances in connection with the management of investment companies, "wrap accounts" and hedge funds. Section 17 of the 1940 Act and the rules thereunder as well as firm policies and procedures (i.e. codes of ethics) have effectively prevented, to a large degree, improper conduct and influences. As future problems or situations occur, both regulatory policy and firm procedures may be modified to address any shortcomings.

66. Would the structure of an actively managed ETF present greater concerns with respect to potential advance communication of information about portfolio changes to affiliates?

No. We note that existing rules, policies and procedures, including Chinese Walls, will apply.

Concept Release IV. Areas for Comment

D. Exemptive Relief from the Investment Company Act for Actively Managed ETFs

4. Relief for Certain ETFs to Redeem Shares in More Than Seven Days

67. Would actively managed ETFs present any issues with respect to this exemption that do not exist with respect to index-based ETFs?

We do not believe any new issues will be presented with respect to relief permitting certain ETFs to redeem shares in more than seven days.

68. Could the investment adviser to an actively managed ETF manage the ETF so as to comply with section 22(e)?

Yes, except possibly for certain funds holding foreign securities, as with some of the current index-based ETFs that invest in such securities.

Concept Release IV. Areas for Comment

E. Potential New Regulatory Issues

1. Potential Discrimination Among Shareholders

69. Would the operation of an actively managed ETF place investors who have the financial resources to purchase or redeem a Creation Unit at NAV in a different position than most retail investors who may buy and sell ETF shares only at market price?

Yes, just as with existing index-based ETFs, in that an investor who purchases or redeems a Creation Unit does so at NAV, and that this will almost certainly differ from the market price.

70. Would the operation of an actively managed ETF give rise to a type of discriminatory treatment of shareholders that section 1(b)(3) of the Act was designed to prevent? Commenters who believe that this concern might be raised by an actively managed ETF are encouraged also to discuss the ways in which they believe the Commission should address it.

No, assuming the ETF complies with the representations made in its exemptive application to the Commission and meets the terms of its exemptive order.

Concept Release IV. Areas for Comment

E. Potential New Regulatory Issues

2. Potential Conflicts of Interest for an ETFs Investment Adviser

71. What potential conflicts of interest would exist for the investment adviser to an actively managed ETF?

It does not seem that new or additional conflicts of interest would be introduced for investment advisers to actively managed ETFs.

72. Would the adviser to an actively managed ETF be in a position to create supply or demand for securities that would favor an affiliate by designating those securities for inclusion in the daily Portfolio Deposit or Redemption Basket?

Possibly. However, this potential influence situation currently exists in the case of many portfolio decisions for existing funds.

73. Would the increased value of the information regarding the identity of future deposit or redemption securities create additional conflicts and potential for abuse?

This question should be explored in light of a particular proposed ETF. However, we do not believe that this information would create additional conflicts beyond the concerns that exist today for any actively managed fund.

74. What measures should be taken to address any potential conflicts?

Potential conflicts should be addressed through disclosure to investors and monitoring by the Commission through its examination program. Also, the investment adviser and its affiliates, and other ETF affiliates should have internal policies and procedures to isolate and avoid conflicts.

Concept Release IV Areas for Comment

E. Potential New Regulatory Issues

3. Prospectus Delivery in Connection with Secondary Market Purchase

75. To the extent that actively managed ETFs would seek similar relief from prospectus delivery requirements, would the relief be consistent with the public interest and the protection of investors?

Yes. There is no reason to distinguish between types of ETFs with respect to relief from prospectus delivery requirements. The product description can include adequate disclosure and the prospectus and statement of additional information remain available for those investors seeking more complete information. Also, there is likely to be significant information available on the Internet.

It is important, however, that, with respect to ETFs that receive exemptive relief under Section 24(d) of the 1940 Act, secondary market trading be subject to the same product description delivery requirements that apply to index-based ETFs, regardless of the market in which an execution occurs. Amex Rule 1000, Commentary .01 (applicable to UITs) and Rule 1000A, Commentary .03 (applicable to management investment companies) require Amex members and member organizations to provide ETF purchasers with a written description of the terms and characteristics of the securities not later than the time a confirmation of the first transaction in the particular ETF is delivered to the purchaser. Other national securities exchanges trading Amex-listed ETFs pursuant to unlisted trading privileges have rules similar to Amex rules regarding product description delivery. Nasdaq, however, lacks a similar requirement for NASD members effecting ETF transactions "off exchange". We believe that the Commission should require each market trading ETFs to adopt comparable rules governing delivery of the product description by members effecting trades in its market.

76. Are there any aspects of an actively managed ETF that would make this relief inappropriate?

No. Any disclosure necessary for an investor's understanding of an actively managed ETF could be included in a product description.

77. For example, should an actively managed ETF be required to deliver its prospectus in order to communicate its investment strategy or fundamental policies?

No. This information can also be communicated in the product description, and is expected to be available on the Internet. For example, ETF issuers currently publish prospectuses on their websites, and information is made available by the listing exchange.

78. If the relief is granted on the condition that actively managed ETFs provide investors with a product description, what information about an actively managed ETF is particularly important to include or highlight in the product description?

The product description should include adequate description of the ETF's investment objective and investment strategy, together with a discussion of the risk of secondary market prices deviating from NAV and indicative portfolio value.

Concept Release IV. Areas for Comment

F. The Concept of an Actively Managed ETC as a Class of a Mutual Fund

1. ETF Class of an Actively Managed Open-End Fund

79. Would actively managed mutual funds seek to introduce exchange-traded classes?

Possibly. Traditional funds might choose to offer ETF share classes as an avenue for increased distribution. The lower portfolio trading costs would be passed through to all investors in all classes. For the ETF class there would be cost savings on transfer agency and administration fees. Additionally, an actively managed ETF class would reduce the impact to the fund of market timing activity which some funds have identified as increasing fund expenses.

80. Do short-term investors such as market timers and day traders use actively managed funds in the same way that they use index funds?

Yes, in certain instances such as sector funds and bond funds with defined maturity ranges.

81. If not, are there different reasons to permit existing actively managed mutual funds to establish ETF classes?

There may be different reasons to support ETF classes in existing funds which would be developed by the funds in their requests for Commission exemptive relief. These could include reduced transfer agent expenses as well as overall fund expenses, and the desire of the fund to provide additional investor flexibility.

82. Would ETF classes of actively managed funds present any issues with respect to exemptions from section 18 that do not exist with respect to ETF classes of index funds?

It is possible that classes of actively managed funds could present exemptive issues under section 18 that do not exist for classes of index funds. If so, any such issues would be considered by the Commission's staff as part of the exemptive process. Also, the requirements of rule 18f-3 for approval of a multi-class plan by the fund's independent directors, and the findings the board must make, provide adequately for the consideration of conflicts and the protection of investors.

83. Would the portfolio disclosure required to make fund operations transparent for purposes of the ETF class prove detrimental to the performance of the conventional shares?

This depends on the level of portfolio disclosure for a particular fund and should be addressed as part of the particular fund's exemptive process.

84. Would significant redemptions of conventional shares create undesirable tax consequences for ETF class shareholders?

An ETF share class would bear the same consequence as the rest of the fund, were there any distributions. Tax consequences could be undesirable, on an isolated basis, depending on the individual circumstances of a particular fund. It is unlikely, however, that this would be a constant or continuing situation. It is also most likely that redemptions would occur in all classes. Tax consequences would be one factor for the board to consider in approving a multi-class plan for a fund with an ETF share class under rule 18f-3 of the 1940 Act.

85. Would the existence of an ETF class add volatility to an actively-managed fund?

This is unlikely. We note that the existing indexed-based ETF that was established as a share class Vanguard's VIPERS (Total Stock Market Index Fund) has not demonstrated any apparent increase in volatility. Many actively managed funds already have multiple share classes which do not contribute to volatility.

86. Is there any additional potential for conflicts of interest in connection with an ETF class of an actively managed fund?

None that do not already exist. The Commission's exemptive application process for a particular fund should also allow for the identification of potential conflicts. If conflicts materialize in the context of a particular open-end management investment company subsequent to its launch, the board of directors would be required to consider and address any regulatory, policy and preferential concerns.

87. Is there additional potential for investor confusion about the nature of the ETF class shares?

Given the wide acceptance of ETFs in the fund marketplace and continuing press coverage and attention, coupled with fund disclosure and advertising requirements, there is little potential for investor confusion.

88. How would potential investor confusion be addressed?

Any potential for investor confusion should be addressed through the existing disclosure and investor education process.

89. Would prospectus delivery relief be appropriate in connection with ETF classes of actively managed funds, and if so, what information should be included in the product description?

Prospectus delivery relief would be appropriate for ETF classes of actively managed funds, as the product description could be tailored for the unique circumstances and disclosure requirements of a particular fund. For example, the product description could make clear that the ETF is a class of a fund whose other classes do not trade in the secondary market, and that the portfolio operations of the entire fund will affect the ETF. See also Response to Question 75 above.

Concept Release V. Solicitation of Additional Comments

90. The Commission has asked for comment on any other issues commentators may wish to address relating to actively managed ETFs.

The Exchange has no additional comment.

1 Although the term "mutual fund" is not defined in the 1940 Act, it typically refers to an investment company that offers for sale any redeemable security of which it is the issuer.
2 See "The Future of Exchange Traded Funds", May, 2000, Financial Research Corporation.
3 In fact, a division of the Amex has applied for a patent in this area.