US SEC hires veteran exchange-traded fund expert

NEW YORK/WASHINGTON, D.C. (Reuters) - U.S. regulators have hired former ProFunds Advisors attorney Barry Pershkow to help provide expertise on policy issues involving exchange-traded funds, a Securities and Exchange Commission spokeswoman said on Wednesday.

Pershkow, who most recently worked at Morgan, Lewis and Bockius, started this month as a senior special counsel in the SEC's Investment Management Division.

The agency tapped Pershkow as it continues its agency-wide review of ETFs to ensure that they are adequately transparent for investors and not fueling market volatility.

The concerns stemmed from the perceived role of ETFs in the May 6, 2010, "flash crash" - when the Dow plunged 700 points in minutes before it sharply recouped most losses.

Since then, regulators have scrutinized whether ETFs are contributing to extreme swings in the market, particularly focusing on leveraged ETFs, which can be used to magnify returns, and inverse ETFs, which aim to deliver the opposite of the performance of the underlying benchmark index.

Pershkow is also likely to play a role in another long-standing review announced in March 2010 that looks at derivatives use by mutual funds and ETFs.

As part of that announcement, the SEC stopped approving exemptive requests by ETFs seeking to invest heavily in derivatives, until the review could be completed.

That review has lasted for nearly two years, frustrating many in the ETF industry who say the moratorium is causing an uneven playing field. Critics say firms that already had exemptive relief before the ban are allowed to continue to launch ETFs that use derivatives, while others do not.

If nothing else, the hire shows the agency is recognizing how important the ETF industry has become, said Eric Pollackov, managing director of ETF capital markets at Charles Schwab Corp..

Leveraged and inverse ETF providers, in particular, are hopeful Pershkow will help their cause given his background at ProFunds, the parent of ProShares, the largest provider of leveraged and inverse ETFs.

"The more the SEC understands, the more they will understand the place (leveraged and inverse ETF products) have in the world," said Andy O'Rourke, director of marketing at Direxion, which has $7.5 billion in leveraged and inverse ETF assets.

In addition to hiring Pershkow, the SEC in December also hired another senior counsel who has a background in derivatives regulation as well, the SEC confirmed.

Paul Schlichting came to the SEC from the Commodity Futures Trading Commission where he served as a special counsel.

He will be involved in helping develop possible new regulatory policies surrounding derivatives use by mutual funds.

Schlichting also will work on rules required by the Dodd-Frank law, including new data reporting rules for hedge funds and the Volcker rule, which restricts banks from trading with their own money and investing in hedge funds.

(Reporting By Jessica Toonkel and Sarah N. Lynch; Editing by Walden Siew and Tim Dobbyn)