SEC Division of Trading and Markets no-action letter: Securities Industry and Financial Markets Association, Re: Broker-Dealer Capital Charges in Connection with the Creation and Redemption of SEC-Registered Exchange-Traded Funds

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OP"
T"ADING AND MAftKl!TS
Kevin Zambrowicz
Deputy General Counsel
July 22, 2025
Securities Industry and Financial Markets Association 1099 New York A venue, 6th Floor Washington, DC 20005 Re: Broker-Dealer Capital Charges in Connection with the Creation and Redemption of SEC-Registered Exchange-Traded Funds Dear Mr. Zambrowicz:
This responds to your May 27, 2025 letter on behalf of the Securities Industry and Financial Markets Association ("SIFMA"). In your letter, SIFMA requests that the staff of the Division of Trading and Markets ("Staff') of the Securities and Exchange Commission ("Commission" or "SEC") not recommend enforcement action against a broker-dealer that does not deduct from its net capital temporary unsecured receivables that arise when a broker-dealer acts as an "Authorized Participant" for an exchange-traded fund ("ETF") that is registered with the Commission under the Investment Company Act of 1940 ("Investment Company Act"), when such ETF holds foreign securities 1 that are not cleared through an SEC-registered clearing agency under the circumstances set forth below. 1 You state that the term "exchange-traded fund" is defined in Investment Company Act Rule 6c￾11 ( a)(l) as an SEC-registered, open-end management company that issues and redeems "creation units" to authorized participants, and whose shares are listed on a national securities exchange. U.S.-regulated ETFs must comply with the federal securities laws, including Rules 6c-11 and 22e-4 under the Investment Company Act. For example, ETFs are subject to SEC disclosure requirements intended to promote investor protection and transparency. They must also implement written policies and procedures for basket construction to help prevent overreaching and abusive practices. See Exchange-Traded Funds, Investment Company Act Release No. 33646 (Sep. 25, 2019), 84 FR 57162 (Oct. 24, 2019). In this letter, the term ETF includes not only such SEC-registered investment companies, but also exchange-listed, SEC-registered investment companies issuing redeemable shares, such as unit investment trusts, and SEC-registered open-end investment companies that either rely on Investment Company Act Rule 6c-11 or an SEC exemptive order. Although Investment Company Act Rule 6c-l l(a)(l) uses the term "foreign investments," this letter uses the term "foreign securities." For the purposes of this letter, the two terms are intended to have the same meaning. See id.