United States: Staff Provides Legend Alternative for Non-Transparent ETFs Short on Ad Space

By Keri E. Riemer

Non-transparent exchange-traded funds (ETFs) that are struggling to fit in digital advertisements the specific risk legend set forth in their exemptive orders (Exemptive Order Risk Legends) may be in luck. On 29 March 2023, the staff (Staff) of the Division of Investment Management of the U.S. Securities and Exchange Commission (SEC) issued a statement (Statement) requesting that non-transparent ETFs use in such ads either (i) the text and formatting of their Exemptive Order Risk Legends; or (ii) the following text and formatting (with bold as shown and without bullets) (the Staff Risk Legend):

The Statement is a function of the Staff becoming aware of “potential space limitations” in some digital advertisements, such as certain banner ads, that do not accommodate the Exemptive Order Risk Legends. The Staff Risk Legend is an alternative that is designed to highlight for investors certain costs, risks and unique attributes of non-transparent ETFs in a manner that may be used in shorter digital advertisements.

The issue arises in connection with the SEC’s providing exemptive relief to permit non-transparent ETFs. One of the conditions of the relief is that such ETFs must include the Exemptive Order Risk Legend, which is lengthy, in their prospectuses, websites and marketing materials. The Statement does not alter the requirements set forth in exemptive orders regarding the placement of Exemptive Order Risk Legends or the usage of the Exemptive Order Risk Legend in prospectuses.

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