In our previous posts, we reviewed the new Rule 6c-11 (the “ETF Rule”) from the U.S. Securities and Exchange Commission (“SEC”), which provides relief to exchange traded funds (“ETFs”). The SEC also issued a complementary exemptive order (the “ETF Exemptive Order”) primarily providing relief to broker-dealers that distribute ETFs. ETFs distribute their shares by issuing a block of shares (known as a “creation unit”) to certain broker-dealers (referred to as “Authorized Participants”) in exchange for a basket of the ETF’s underlying securities. Authorized Participants then sell these ETF shares on exchanges. Only Authorized Participants may redeem the ETF’s shares for the basket of underlying securities (or the cash equivalent) and only in amounts corresponding to a creation unit. This process could cause Authorized Participants and ETFs to run afoul of the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) discussed below.