Crypto industry participants urged the US Securities and Exchange Commission (SEC) to avoid a blanket restriction on “novel” exchange-traded funds (ETFs) and instead evaluate products based on their individual risk parameters.
Venture capital firm a16z asked the SEC to evaluate novel products according to their underlying characteristics, coordinate fund-registration and exchange-listing reviews and adopt more predictable timelines. Digital asset investment manager Grayscale and the Crypto Council for Innovation (CCI) supported optional confidential pre-filing processes.
All three opposed changing existing investment-company classifications in ways that could automatically sweep products holding non-securities into the Investment Company Act framework.
The letters were dated Aug. 31 and posted by the SEC around the close of a 60-day public-comment period on its request for feedback concerning novel ETFs.
The SEC opened the consultation window on the next generation of ETFs on June 30, seeking feedback on whether existing regulations are adequate, how such funds should be regulated and whether changes to the registration process are needed.
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Crypto industry stakeholders urge SEC for more regulatory clarity on novel ETFs
A16z argued that crypto-based ETPs now benefit from more developed market infrastructure, including exchange-approved listing standards and established disclosure requirements, and therefore should not be grouped with products holding private assets or using other novel strategies.
Grayscale similarly argued that digital asset products with established compliance and disclosure records should not face new portfolio conditions or disclosure regimes merely because they are characterized as novel. CCI called for comparable regulatory efficiencies across ETFs and non-ETF ETPs while preserving existing investor protections.
The commenters broadly opposed categorical regulatory changes that could impose additional requirements or delay product launches. However, their recommendations differed on classification, approval procedures and terminology.
One clear disagreement concerned the ETF label. a16z proposed that the term ETF should be reserved for funds under the Investment Company Act of 1940, while Grayscale said that the term ETF should describe economic characteristics regardless of the legal wrapper.
Meanwhile, CCI urged the financial regulator to create clearer registration-status disclosures rather than radically changing the current approval framework.