Industry Calls for Product-Specific SEC Review of Novel ETFs
Major crypto industry players have urged the US Securities and Exchange Commission (SEC) to avoid treating "novel" exchange-traded funds (ETFs) as a single regulatory category, arguing instead that each product should be assessed on its own risk profile and mechanics. In comments dated Aug. 31 and posted by the SEC near the close of a 60-day public-comment period, venture capital firm a16z, digital asset investment manager Grayscale, and the Crypto Council for Innovation (CCI) asked the regulator to maintain existing investment-company classification guardrails and resist sweeping changes that could automatically pull products holding non-securities into the Investment Company Act framework.
Background: SEC's June 30 Consultation
The SEC opened its consultation on the "next generation" of ETFs on June 30, seeking public input on whether existing regulations are adequate, how such funds should be regulated, and whether the registration process needs to be adjusted for new types of exchange-traded products. The request marked the start of a broad review of how the agency handles novel ETF structures, including those based on crypto assets.
a16z: Evaluate Underlying Characteristics and Coordinate Reviews
In its filing, 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. The firm argued that crypto-based exchange-traded products now benefit from more developed market infrastructure, including exchange-approved listing standards and established disclosure requirements. As a result, a16z said these products should not be grouped with those holding private assets or employing other novel strategies. The firm also proposed that the term "ETF" be reserved for funds operating under the Investment Company Act of 1940.
Grayscale: Established Products Should Not Face New Conditions
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." The company said the term "ETF" should describe economic characteristics regardless of the legal wrapper, diverging from a16z's more narrow definitional approach.
CCI: Comparable Efficiencies and Clearer Disclosures
The Crypto Council for Innovation called for comparable regulatory efficiencies across ETFs and non-ETF exchange-traded products while preserving existing investor protections. CCI also urged the SEC to create clearer registration-status disclosures rather than radically changing the current approval framework.
Shared Positions: Opposition to Categorical Rule Changes
All three commenters opposed changing existing investment-company classifications in ways that could automatically sweep products holding non-securities into the Investment Company Act framework. They argued that such categorical changes could inadvertently subject a wide range of digital asset products to regulatory requirements not tailored to their specific risks.
Support for Confidential Pre-Filing Processes
Grayscale and CCI supported the introduction of optional confidential pre-filing processes, which would allow issuers to clarify regulatory expectations earlier in the review process. This proposal, along with the calls for coordinated registration and listing reviews, reflects a broader industry desire for more predictable timelines and reduced uncertainty when bringing novel ETFs to market.