With this statement, the Division of Investment Management (“Division” or “Staff”) provides its views regarding exchange-traded funds’ (“ETFs”) disclosure of foreign currency holdings on their website as needed to comply with the daily portfolio holdings disclosure requirements of Rule 6c-11 under the Investment Company Act of 1940 (“Act”).

Portfolio Transparency and ETF Arbitrage Under Rule 6c-11

Rule 6c-11 requires ETFs to disclose their portfolio holdings daily in order to facilitate the arbitrage mechanism needed “to keep market prices of ETF shares at or close to the [net asset value (“NAV”)] per share of the ETF.”[1] As the Commission stated in adopting Rule 6c-11, “[p]ortfolio transparency provides authorized participants and other market participants with a tool to facilitate valuing the ETF’s portfolio on an intraday basis, which, in turn, enables them to identify arbitrage opportunities and to effectively hedge their positions.”[2] Maintaining the market price of an ETF’s shares at or close to its NAV per share helps to ensure that all ETF investors buying and selling ETF shares are treated equitably.[3]

Rule 6c-11’s Portfolio Holdings Disclosure

Rule 6c-11(c)(1) requires an ETF, on each business day before the open of trading on its primary listing exchange, to publicly disclose on its website the following information (as applicable) for each portfolio holding that will form the basis of the next calculation of the ETF’s current NAV per share:[4]

• ticker symbol;
• CUSIP or other identifier;
• description of holding;
• quantity of each security or other asset held; and
• percentage weight of the holding in the portfolio.

In adopting this requirement, the Commission explained:

[T]o arbitrage an ETF’s holdings, market participants generally must be able to identify the security or asset held, the quantity held, and percentage weighting of the holding in the ETF’s portfolio.^{[ ]} To enable market participants to identify the investment held, we are requiring the ETF to disclose the ticker, CUSIP or other identifier (where applicable) of the holding, and to provide a description of the holding. Because certain investments may not have been assigned a common securities identifier, we are requiring the ETF to provide a brief description of the investment to allow an investor to effectively hedge the ETF.[5]

The Commission also stated that making this information broadly available on an ETF’s website will benefit a broad range of investors, including retail investors, so they can understand the ETF’s holdings.[6]

ETFs Should Identify the Specific Currency of Their Positions in Currency Other Than U.S. Dollars

The Staff has observed the disclosure of some ETF portfolio holdings identify foreign currency positions only as “cash” for purposes of compliance with Rule 6c-11(c)(1)(i). The Staff believes that this descriptor is not an appropriate “description of [the] holding” under the rule because it does not provide a retail investor or market participant with enough information to understand the ETF’s foreign currency holdings. In particular, disclosure of foreign currency simply as “cash” does not permit market participants to distinguish between an ETF’s holdings of U.S. dollars and holdings of other currencies, and to identify their respective values throughout the day, for arbitrage purposes. This lack of information increases a market participant’s risk as it engages in arbitrage transactions, which can lead to greater spreads in an ETF’s secondary market, raising the expense for investors to trade the ETF shares.[7] In the Staff’s view, an ETF that holds any currency other than U.S. dollars should identify the specific currency to satisfy the requirement in Rule 6c-11(c)(1)(i)(C) to provide an adequate description of the holding.