SEC Seeks Comment on ETFs Using Novel Assets and Strategies

The SEC asked for public comment on exchange-traded funds that invest in innovative asset classes or use novel strategies.

The SEC reported that total net ETF assets have grown to over $12 trillion. The growth in ETFs now includes "novel ETFs" that are tied to crypto assets, commodity instruments, single-stock strategies, heightened leverage, blockchain opportunities, private assets, and event contracts.

According to the SEC, these "novel" products raise legal questions, including (i) whether an ETF that holds primarily non-securities is an "investment company" as defined in the Investment Company Act and (ii) whether such a fund is within ICA Rule 6c-11 (exchange-traded funds), the rule that allows qualifying ETFs to launch without a separate exemptive order from the provisions of the ICA ordinarily applicable to open-end funds.

The request for comment reiterates the SEC's support for innovation but says that it must do so while protecting investors and keeping markets fair and orderly.