Crypto Groups Push SEC for Tailored Rules on Novel ETFs
The Securities and Exchange Commission (SEC) has received a flurry of submissions from various crypto firms, asset managers, market makers, and consumer advocates in response to its request for comment on "novel ETFs." These submissions, which were due on Monday, highlight the need for tailored rules to accommodate the growing number of exchange-traded products (ETPs) that track novel assets and strategies.
Competing Plans for Regulation
The Crypto Council for Innovation (CCI) was one of the first to submit its letter to the SEC, urging the agency to provide regulatory efficiencies for non-ETF ETPs. CCI argued that just as the Commission has modernized rules to promote efficiencies for ETFs, it should consider providing similar efficiencies for non-ETF ETPs to promote regulatory parity, foster innovation, and expand investor choice. The group also asked the SEC to refrain from updating the definition of an investment company, arguing that a change could create uncertainty without providing a clear benefit to investors.
Standardizing Review Procedures
Andreessen Horowitz (A16z) also submitted a letter to the SEC, calling for a lighter touch in regulating crypto ETPs. The firm argued that crypto ETPs already operate under exchange listing standards and established disclosure requirements, which separate them from products holding illiquid private assets or pursuing less-tested strategies. A16z proposed standardized schedules and shorter review periods for certain products, as well as closer coordination between fund-registration and exchange-listing reviews.
Industry Split on Portfolio Restrictions
However, not all submissions were in favor of a lighter touch. Grayscale opposed new portfolio restrictions for established digital-asset products, while Charles Schwab proposed making a resulting filing public for at least 75 days before it takes effect. Blockchain forensics firm Chainalysis suggested that public blockchains could support real-time surveillance, independently verifiable portfolio data, and machine-readable disclosures.
Event Contracts and Investor Protection
Prediction market Kalshi argued that event contracts should remain eligible for registered funds, which are subject to governance and investor-protection requirements. However, consumer advocacy group Public Citizen opposed this approach, warning that event-contract ETFs would place gambling-like products inside a vehicle retail investors associate with long-term investing.
SEC's Next Steps
The SEC must now determine whether those products require a common regulatory framework or separate rules based on their structures and risks. The agency will need to carefully consider the competing plans and submissions from various stakeholders before making a decision. The outcome will have significant implications for the development of the crypto and ETP markets, and will likely shape the regulatory landscape for years to come.
What to Watch Next
As the SEC deliberates on the future of novel ETFs, investors and industry stakeholders will be watching closely for any developments. The agency's decision will have a significant impact on the growth and development of the crypto and ETP markets, and will likely influence the types of products that are available to investors. In the meantime, it is essential for industry participants to continue engaging with the SEC and providing input on the regulatory framework for novel ETFs.
