To direct the Secretary of the Treasury to modify certain regulations relating to insurance-dedicated exchange-traded funds.

To direct the Secretary of the Treasury to modify certain regulations relating to insurance-dedicated exchange-traded funds. 1. Insurance-dedicated exchange-traded funds (a) In general Not later than the date which is 1 year after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate) shall amend the regulation issued by the Department of the Treasury relating to Income Tax; Diversification Requirements for Variable Annuity, Endowment, and Life Insurance Contracts section 817(d) (b) Designate certain authorized participants and market makers as eligible investors The Secretary of the Treasury (or the Secretary’s delegate) shall amend Treas. Reg. section 1.817–5(f)(3) to provide that satisfaction of the requirements in Treas. Reg. section 1.817–5(f)(2)(i) with respect to an exchange-traded fund shall not be prevented by reason of beneficial interests in such a fund being held by one or more authorized participants or market makers. (c) Confirm that similarities to other funds are irrelevant The Secretary of the Treasury (or the Secretary’s delegate) shall amend Treas. Reg. section 1.817–5(f) to confirm that, for Federal income tax purposes, a regulated investment company, partnership, or trust (including an exchange-traded fund) that satisfies the requirements of Treas. Reg. section 1.817–5(f) (2) and (3) shall not be treated as owned by the holder of a variable contract pursuant to the principles of Rev. Rul. 81–225, 1981–2 C.B. 12, merely because another regulated investment company, partnership, trust, or similar investment vehicle follows the same investment strategy, has the same investment manager, or holds the same investments. (d) Define relevant terms In amending Treas. Reg. section 1.817–5(f)(3) in accordance with subsections (b) and (c) of this section, the Secretary of the Treasury (or the Secretary’s delegate) shall provide definitions consistent with the following: (1) Exchange-traded fund The term exchange-traded fund (A) that is registered with the Securities and Exchange Commission as an open-end investment company or a unit investment trust; (B) the shares of which can be purchased or redeemed directly from the fund only by an authorized participant; and (C) the shares of which are traded throughout the day on a national stock exchange at market prices that may or may not be the same as the net asset value of the shares. (2) Authorized participant The term authorized participant (A) purchasing the shares for its own investment purposes rather than for the exclusive purpose of creating and redeeming such shares on behalf of third parties; and (B) selling the shares to third parties who are not market makers or otherwise described in Treas. Reg. section 1.817–5(f) (1) and (3). (3) Market maker The term market maker (e) Effective dates, enforcement, and interpretations (1) Effective dates (A) Subsection (b), and the definitions under subsection (d), shall apply to segregated asset account investments made on or after the date of enactment of this Act. (B) Subsection (c) shall apply to taxable years beginning after December 31, 1983. (2) Enforcement and interpretations Prior to the date that the Secretary of the Treasury (or the Secretary’s delegate) issues final regulations pursuant to this section— (A) the Secretary (or delegate) shall administer and enforce the law in accordance with this section and the effective dates in paragraph (1) of this subsection; and (B) taxpayers may rely upon their reasonable good faith interpretations of the preceding subsections of this section.

Summary: This bill directs the Department of the Treasury to modify certain regulations relating to insurance-dedicated exchange-traded funds. An exchange-traded fund is a regulated investment company, partnership, or trust (1) that is registered with the Securities and Exchange Commission as an open-end investment company or a unit investment trust, (2) the shares of which can be purchased or redeemed directly from the fund only by an authorized participant (i.e., a financial institution that is a member or participant of a registered clearing agency), and (3) the shares of which are traded throughout the day on a national stock exchange at market prices that may or may not be the same as the net asset value of the shares.