SEC consults on ‘novel’ ETFs

With fund managers rolling out exchange-traded funds (ETFs) that hold an increasingly diverse range of alternative assets and adopting newfangled investment strategies, the U.S. Securities and Exchange Commission (SEC) is consulting on striking the balance between enabling innovation and upholding investor protection.

The SEC launched a consultation on the regulation of novel ETFs, including its approach to reviewing and registering these vehicles — amid the growth of funds that invest in non-traditional assets and strategies, including crypto, private equity and credit, event contracts and utilizing expanded leverage, among other strategies.

The sector’s recent evolution has raised questions among investment industry firms, exchanges and other market players about the listing and supervision of these products, the regulator noted.

Among other things, the industry has questioned whether SEC staff has enough time to “effectively review and address legal issues that may arise with these novel ETFs,” it noted.  

Against that backdrop, the SEC is now consulting on its approach to product innovation in the ETF sector — including whether it should be doing more to help investors understand novel ETFs and their legal and regulatory status.

“The commission’s request for comment seeks input from the public on how the U.S. ETF market can continue to grow and innovate while serving investors effectively, and I look forward to reviewing feedback from market participants as we evaluate how to best respond to recent market changes,” said SEC chairman, Paul Atkins, in a release.  

The consultation is open for public comment for 60 days following its publication in the Federal Register.