Regulatory exemption comes as giant asset manager re-focuses on index funds. Exchange-traded fund (ETF) pioneer State Street Global Advisors (SSgA) has received an exemption from the Securities and Exchange Commission (SEC) so that registered investment companies can put money in SSgA-managed ETFs above limits set by Section 12(d)(1)(A) of the Investment Company Act of 1940.

ETFs are investment companies that hold portfolios of securities that track indices, styles, sectors, specialties or geographic regions and trade like shares of stock.

"This relief will allow mutual funds greater flexibility to invest in State Street managed ETFs to achieve their portfolio management goals," State Street senior managing director James Ross says in a press release. "Previously, they were restricted by the [19]40 Act stipulation in the amount they could invest, and we are pleased that this obstacle has been removed."

No kidding

Section 12(d)(1)(A) of the 1940 act prohibits an investment firm from acquiring more than 3% of the total outstanding voting stock of another investment firm, investing more than 5% of its assets in a single investment company, or investing more than 10% of its assets in two or more investment companies.

The SEC exemption covers SSgA's Select Sector SPDRs, an ETF offering that divides the S&P 500 into nine sector index funds, and its streetTRACKS, a collection of ETFs that track a variety of market-cap, style, region and industry indices. The SEC granted similar relief to SSgA's SPDR Trust and DIAMONDS Trust ETFs in 2004.

SSgA's corporate parent State Street says 1940 Act exemptions for ETFs aren't that unusual because the SEC wants to accommodate big investors like mutual funds that want such flexibility to fill tactical or even strategic allocations as cheaply and efficiently as possible.

The exemption order also coincides with "our overall re-focus on ETFs," says State Street spokesman Brian Willinsky. "We view [ETFs] as a good space with a very strong growth trend."

There were 315 ETFs issued by U.S. investment companies with total assets of $383.3 billion at the end October 2006, according to the Investment Company Institute. At the end of 2000, there were 80 U.S. investment-company issued ETFs with total assets of $65.6 billion.

SSgA says it managed 66 ETFs with roughly $110 billion in global assets at the end of October -- which, it says, gives it about 20% of the U.S. ETF market.

State Street in fact introduced the first ETF, the S&P 500-tracking SPDR, in 1993. Since then though, it has fallen behind Barclays Global Investors as the leading manager of ETFs.

Boston-based SSgA had $1.6 trillion in assets under management at the end of September 2006. -FWR

.