On December 6, 2012, the staff of the Securities and Exchange Commission (the “SEC”) announced that it was lifting its moratorium on the use of derivatives by actively-managed exchange-traded funds (“ETFs”). Below, we summarize the SEC staff’s actions to date and discuss the ramifications for ETFs and their sponsors.

I – Background -

The SEC’s moratorium was publicly announced in March 20101 (though the SEC staff had been informally imposing the moratorium for several months prior to that time). In its press release announcing the moratorium, the SEC stated that the staff would defer consideration of exemptive requests under the Investment Company Act of 1940, as amended (the “1940 Act”) relating to actively-managed and leveraged ETFs that would make significant investments in derivatives. As a practical matter, though, in order for ETF sponsors to obtain exemptive relief to offer actively-managed ETFs following the imposition of the moratorium, the SEC staff required ETF sponsors to represent that their actively-managed ETFs would not make any investments in options, futures or swaps. ETF sponsors who had obtained exemptive relief too ffer actively-managed ETFs before the moratorium was imposed were, however, allowed to continue offering actively-managed ETFs which utilized derivatives.