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The Wall Street Journal: Investment giants seek stricter definition of what makes an ETF

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BlackRock Inc. BLK, +6.90% , State Street Global Advisors STT, -5.43% and some other large money managers are asking exchanges to enforce a more narrow definition of exchange-traded funds.

These firms want a new naming system reflected in exchange data feeds that go out to traders and investors. A proposal, shared with exchanges this week, would shut out leveraged and inverse funds that seek to amplify returns or losses from the definition of an ETF. It would also distinguish ETFs from debt notes and some funds that rely on leverage and commodity bets.

The pressure from asset managers is the latest reflection of how some large firms are trying to exercise their clout over a roughly $5 trillion industry. Charles Schwab Corp. SCHW, -3.40% , Vanguard Group, Fidelity Investments—firms known for their retail customers—have also signed the letter. Invesco Ltd. also is part of the group.

ETFs, which offer investors a basket of investments as a single product offered on an exchange, have transformed how everyone from day traders to big pensions invest. The rapid rise of ETFs over the last decade reshaped how investors get in and out of markets, turned a handful of investment firms into giants, and altered how central banks pump money into the economy.

“It is important that Nasdaq, in its regulatory and oversight role, play a part in helping to ensure that complex and levered products are not confused with more traditional investment products which are widely used by retail investors to access the stock, bond and other markets,” according to a letter a half dozen firms sent to the exchange. They sent similar letters to the New York Stock Exchange and Cboe Global Markets.

An expanded version of this report appears on WSJ.com:

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