The U.S. Securities and Exchange Commission (SEC) headquarters in Washington in November, 2024.Benoit Tessier/Reuters

Eli Yufest is the executive director of the Canadian Exchange Traded Funds Association.

A recent decision by the U.S. Securities and Exchange Commission poses an urgent challenge to Canada’s capital markets and economy that, if left unaddressed, could hollow out our markets and threaten our economic sovereignty.

For more than two decades, Vanguard Group Inc.’s U.S. patent on the ETF share class structure gave it a unique edge: This structure enabled massive economies of scale and tax benefits that helped the investment management company become a dominant player.

Since the expiry of Vanguard’s patent in 2023, approximately 80 U.S. asset managers have applied to launch ETF share classes of their mutual funds.

On Sept. 29, the SEC approved the first application, submitted by Dimensional Fund Advisors, and opened the floodgates, with hundreds more likely to follow.

If each asset manager were to create even 20 ETFs, more than 1,600 new products could hit the market in short order and be available for Canadian investors.

© The Globe and Mail