Eaton Vance Files Second Amended Exemptive Application for Clearhedge™ Method Portfolio-Protected ETFs

Rhea-AI Summary

Eaton Vance Corp. (NYSE: EV) has filed a second amended exemptive application with the SEC for a new type of exchange-traded fund (ETF) utilizing the Clearhedge™ Method. This approach allows ETFs to keep current holdings confidential while still enabling efficient secondary market trading. The new ETFs will disclose a NAV Reference Portfolio daily to aid market makers in managing inventory risks. Stephen W. Clarke, President of Advanced Fund Solutions, emphasizes that these ETFs could lead to better trading performance and lower investor trading costs. As of April 30, 2020, Eaton Vance managed $465.3 billion in assets.

Positive

• The second amended application may enhance the creation of actively managed ETFs, which could lead to improved market performance.
• The Clearhedge Method aims to maintain confidentiality of fund trading information, potentially attracting investors concerned about transparency.
• Expected to lower trading costs for shareholders, enhancing overall investor experience.

Negative

• None.

BOSTON, July 13, 2020 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today announced that Eaton Vance Management, a wholly-owned subsidiary, and Eaton Vance Exchange-Traded Fund Trust have filed with the U.S. Securities and Exchange Commission a second amendment exemptive application seeking relief to permit the creation and operation of exchange-traded funds (ETFs) that would employ a novel method of supporting efficient secondary market trading of fund shares (the Clearhedge™ Method). Because disclosure of current holdings would not be necessary, an ETF's portfolio trading activity could remain confidential. The application amends and supplements the Clearhedge Method exemptive application filed on February 20, 2019 and first amended on March 18, 2020.  

As proposed, ETFs utilizing the Clearhedge Method would (i) publicly disclose prior to the beginning of U.S. market trading each business day a "NAV Reference Portfolio" generally consisting of liquid market instruments trading throughout U.S. market hours whose performance the ETF's adviser expects to be highly correlated with the performance of the ETF's actual portfolio, but varying from the ETF's holdings to protect the confidentiality of the ETF's current trading; and (ii) provide for market makers and other arbitrageurs active in the ETF's shares to enter into "Clearhedge Swap" transactions with the ETF, allowing for a precise hedge of their ETF shares positions.  Applicants believe that, by varying the size and direction of its NAV Reference Portfolio and Clearhedge Swap positions as it changes its positions in ETF shares intraday, an arbitrageur could manage its inventory risk in the ETF's shares with substantially the same precision as if it knew the ETF's current portfolio holdings. Applicants expect ETFs utilizing the Clearhedge Method to exhibit better secondary market trading performance than the many existing ETFs that do not afford arbitrageurs a comparable ability to hedge their fund share positions.  As an additional potential advantage, Applicants expect ETFs utilizing the Clearhedge Method to provide greater transparency of investor trading costs than offered by existing ETFs. 

"The filing of a second amended exemptive application is an important milestone in advancing the availability of actively managed ETFs that both protect the confidentiality of fund trading information and support efficient share arbitrage and low shareholder trading costs in all market environments," said Stephen W. Clarke, President, Advanced Fund Solutions LLC (AFS), a subsidiary of Eaton Vance Management formed in 2019 to manage the development and commercialization of ETFs utilizing the Clearhedge Method and other fund-related intellectual property. "By enabling arbitrageurs to perfect their arbitrage positions using Clearhedge Swaps, we expect ETFs utilizing the Clearhedge Method to demonstrate best-in-class trading performance." 

Aspects of the Clearhedge Method are subject to U.S. Patent 10,102,573 and pending patent applications.  Through licensing and services arrangements, Eaton Vance and AFS seek to make the Clearhedge Method available across the ETF industry.   

Eaton Vance provides advanced investment strategies and wealth management solutions to forward-thinking investors around the world. Through principal investment affiliates Eaton Vance Management, Parametric, Atlanta Capital, Calvert and Hexavest, the Company offers a diversity of investment approaches, encompassing bottom-up and top-down fundamental active management, responsible investing, systematic investing and customized implementation of client-specified portfolio exposures. As of April 30, 2020, Eaton Vance had consolidated assets under management of $465.3 billion. Exemplary service, timely innovation and attractive returns across market cycles have been hallmarks of Eaton Vance since 1924. For more information, visit eatonvance.com.   

The information contained herein is provided for informational purposes only and does not constitute a solicitation of an offer to buy or sell any security, investment product or service.

Statements in this press release that are not historical facts are "forward-looking statements" as defined by the U.S. securities laws. You should exercise caution in interpreting and relying on forward-looking statements because they are subject to uncertainties and other factors that could cause actual results to differ materially from those set forth.

 

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SOURCE Eaton Vance Corp.

FAQ

What is the Clearhedge Method proposed by Eaton Vance?

The Clearhedge Method is a novel approach for ETFs that allows for confidential trading portfolios while supporting efficient market trading.

What did Eaton Vance file with the SEC on July 13, 2020?

Eaton Vance filed a second amended exemptive application for ETFs utilizing the Clearhedge Method.

What are the expected benefits of ETFs using the Clearhedge Method?

These ETFs are expected to offer better trading performance and lower trading costs for investors.

What assets under management did Eaton Vance report as of April 30, 2020?

Eaton Vance reported consolidated assets under management of $465.3 billion.

How does the Clearhedge Method protect investor information?

It allows ETFs to disclose a NAV Reference Portfolio instead of current holdings, maintaining the confidentiality of trading activities.