Washington – A coalition of market participants has sent a series of letters to the U.S. Securities and Exchange Commission urging the agency to rethink its plan to label a wide swath of exchange‑traded funds as “novel ETFs.” The letters, filed by asset managers, exchanges, brokerage firms and clearing houses, argue that the SEC’s proposal is overly broad and lacks a clear definition of what makes an ETF “novel.”
Industry concerns about a vague label
Angela Brickl, chief operating officer and general counsel of Rafferty Asset Management, wrote that “‘Novel ETFs’ cannot be effectively defined.” Brickl warned that a definition tied to today’s list of new asset classes would become obsolete as tomorrow’s innovations emerge, penalizing every new idea or product modification.
Many issuers and exchanges fear that a sweeping change to the SEC’s existing process – which currently allows most new ETFs to launch automatically within 75 days of filing – could jeopardize growth in the $12 trillion U.S. ETF market. Mike Khouw, a strategist at YieldMax, said the firm has benefited from the current rules and cautioned that “lumping together all of these products is painting with too broad a brush.” YieldMax is monitoring the SEC’s response because it frequently uses complex options strategies in building ETFs.
Calls for a focus on investor protection
Jeffrey Davis, senior vice president of Nasdaq, acknowledged that some recent ETF filings have “tested the boundaries” of existing rules. However, he urged the SEC to avoid creating a new asset‑class label and instead concentrate on “structural characteristics that meaningfully affect investor protection and market integrity.”
Only a few commenters addressed funds tied to prediction markets. Douglas Crescenzi, chief operating officer of Adjacent Markets, which builds indexes linked to event contracts, asked regulators to treat those funds like any other ETF. Ben Schiffrin, director of securities policy at the advocacy group Better Markets, added that there is “no reason for the SEC to treat these funds as equivalent to ETFs that invest in securities and in which millions of Americans invest.”
Potential impact on the broader market
Analysts note that the SEC’s broad‑based review and request for comment come after several asset managers attempted to launch funds tied to prediction markets. Without a precise definition, the agency risks creating uncertainty that could slow the introduction of innovative products, limiting options for investors and potentially curbing the sector’s growth.
The SEC has not yet responded to requests for comment on the letters. The agency’s next steps will be closely watched by industry participants who rely on the current streamlined process to bring new investment products to market quickly and efficiently.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
