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SEC novel ETF review
Grayscale Investments, venture capital firm Andreessen Horowitz (a16z), and the Crypto Council for Innovation (CCI) urged the U.S. Securities and Exchange Commission (SEC) to avoid imposing uniform restrictions on “novel” exchange-traded funds (ETFs) and instead assess each product using its specific risk attributes and structure.
“The SEC opened the consultation on June 30.”
The SEC opened its consultation on June 30, asking whether current regulation of ETFs is sufficient for the next generation of funds and whether changes to registration and approval processes are warranted.
In their submissions dated August 31, the three organizations opposed any regulatory change that would automatically place investment products holding non-securities—such as cryptocurrencies—under the Investment Company Act.
The SEC’s consultation closed August 31 without creating a rule, decision deadline, or automatic product restriction, according to Crypto News | Other.
Letters diverge on “ETF”
a16z told the SEC it should assess each “novel” product according to its economic structure and underlying risks, and it argued that asset based labels could group established crypto products with less developed strategies that present different liquidity, valuation and custody concerns.
Grayscale argued for a different approach to the ETF label, opposing additional portfolio conditions or disclosure requirements that would apply solely because regulators describe a product as novel.
CCI supported optional confidential pre-filing procedures, saying they would allow firms to consult with the regulator ahead of a public application and potentially streamline the launch of innovative financial products.
While the letters converged on process improvements, they diverged on classification, approval protocols, and the fundamental definition of ETFs, with a16z emphasizing the need for the ETF designation to be limited to funds governed by the Investment Company Act of 1940.
What’s at stake next
The SEC’s novel ETF review centers on whether a product mainly investing in assets that are not securities could still qualify as an investment company under the Investment Company Act of 1940, and the commenters opposed changing established tests to automatically capture exchange traded products holding nonsecurity assets.
“The SEC asked whether a product mainly investing in assets that are not securities could still qualify”
Crypto Council for Innovation also urged the SEC to create more efficient and predictable paths to market for all ETPs, including products providing exposure to crypto assets, blockchain opportunities and event contracts, while backing clearer ETP naming and disclosure requirements to prevent investors from confusing non-investment-company products with ETFs.
CCI highlighted Rule 6c-11 and Rule 485 as mechanisms that allow qualifying ETFs to operate without seeking individual exemptive orders and allow ETF sponsors to register new funds through post-effective amendments with defined automatic effectiveness periods.
Across the letters, the shared concern was that categorical changes could delay product rollouts or impose additional requirements without regard to the specific characteristics of each fund, even as the SEC is expected to review the submitted feedback and consider amendments to its policies.