WASHINGTON (Reuters) - The U.S. securities regulator on Thursday voted unanimously to propose easing its rules for approving low-risk exchange-traded funds (ETFs) in what could potentially be a major win for the $3.5 trillion market.

FILE PHOTO: The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, U.S., June 24, 2011. REUTERS/Jonathan Ernst/File Photo

The Securities and Exchange Commission (SEC) five-member commission voted 5-0 to propose a rule to allow companies that sell ETFs to launch plain vanilla versions without first seeking approval from the regulator. The SEC said it hopes the rule change will boost competition and innovation by lowering the barriers to entry.

The rule change, subject to feedback from the industry, would apply to open-ended ETFs, a type of mutual fund that does not have restrictions on the amount of shares it can issue, which covers the vast majority of ETFs today.

Dozens of ETF companies currently operate under different requirements in a complex system they say has inadvertently allowed some firms to gain a competitive advantage.

ETF issuers must get SEC permission, known as exemptive relief, before selling funds under the Investment Company Act of 1940.

Democratic Commissioner Rob Jackson said he reluctantly voted for the rule change due to potential risk factors to investors, while Commissioner Kara Stein, also a Democrat, emphasized the enforcement of existing oversight controls.

“The rule would include many of the website disclosure requirements that are in existing orders such as disclosing the ETFs current net asset value per share, market price, and premium or discount - each as of the prior business day,” said Stein.

The Investment Company Institute, a Washington-based trade group that advocates for regulated funds, including ETFs, applauded the SEC proposal.

“Investors - and the asset managers who serve them - deserve a more uniform ETF regulatory framework. The time is right to codify these exemptive orders into a single rule,” the group said in a statement.

Todd Rosenbluth, director of ETF & mutual fund research at CFRA Research, said the proposed rule change could “support new ETF launches, particularly tied to long-term thematic approaches, from small independent asset managers.”

BlackRock Inc and Vanguard Group accounted for more than 60 percent of the record inflows of $655 billion that entered ETFs globally in 2017, according to Morningstar Inc.

Melissa Garville, a BlackRock spokeswoman, said: “ETFs are driving investor progress by helping tens of millions of people generate wealth and meet retirement goals. That is why BlackRock has long supported regulation of the ETF market that enhances transparency, market quality and choice for investors. We look forward to reviewing the proposal in more detail and commenting in due course.”