SEC’s ‘complex’ ETP probe could effect crypto ETFs

SEC’s ‘complex’ ETP probe could effect crypto ETFs

Gensler cited leveraged and reverse strategies as examples of complex ETPs. Commissioners Allison Herren Lee and Caroline Crenshaw, however, suggested that any new rule would cover ETPs that are not regulated by the Investment Companies Act, such as exchange-traded notes, commodity pools and other structured notes.

Kindly see us ETF center point A simple to-utilize apparatus to assist investors with news and education, market updates and analysis, and the choice of the right ETF. As per legal counselors and analysts, the Securities and Exchange Commission’s directions to consider all the more intently how to control complex recorded trading items will affect future Bitcoin ETF rules. Last week, SEC Chair Gary Gensler taught staff to investigate the risks of ETFs embracing “more complex than regular equities and fixed pay” procedures and to draft likely standards to address those worries.

“While there are differences in the structures of these products, they can present similar risks to investors and markets, and the commission should strive to take a consistent approach to managing these risks to ensure that our rules do not unnecessarily create opportunities for regulatory arbitrage. “, they wrote in a statement.

History suggests that the SEC wants to control when and how crypto ETFs enter the market, said Jeremy Senderowicz, shareholder of Vedder Price.

This article was previously published by Ignites, a title owned by the FT group.

“With Bitcoin, they probably wouldn’t want to issue a blanket rule too quickly,” he said.

Historically, SEC commissioners had used the stock exchange listing rule process – known as the 19b-4 process – to review and approve the first generation of new ETF concepts, including early fixed income ETFs. and non-transparent active strategies, he said.

The SEC’s work on ETFs is also part of a larger project to curb crypto-finance, which Gensler has described as a “Wild West or the old world of the ‘buyer beware’. that existed before securities laws were enacted ”.

“This asset class is rife with frauds, scams and abuse in certain applications,” Gensler told the House Financial Services Committee in prepared remarks. “We can do better. “ But one lawyer worried that if regulators weren’t tackling crypto ETFs soon, or at least putting in place a framework for their scrutiny through complex new ETP regulations, there was a risk that more investors will seek access outside the jurisdiction of the SEC.

“It’s easier to get a clearer idea of ​​what you are going to regulate in the future if you clarify what you are regulating now,” said Mr. Ridgway Barker, president of the Corporate Finance group at Withersworldwide. The bitcoin market has grown rapidly since the SEC began reviewing the first of these products five years ago, he noted. The SEC may want to focus its regulatory efforts on requiring complex ETFs to clarify their existing information, rather than creating new information, he added.

But even if bitcoin was not specifically addressed in the additional regulation of complex ETPs, these products could be factored into the new Selling Rules of Practice for ETPs, according to Senderowicz of Vedder Price and Dave Nadig, director of the ETP. research and investment director of ETF Trends. The SEC’s decision to remove increased due diligence practices for leveraged and inverse ETFs from the Derivatives Final Rule prompted Crenshaw and Herren Lee to deny their regulatory approval.

Any new complex ETP rule should “renew this effort and consider expanding it beyond registered investment firms to reach other types of complex exchange-traded products,” they said last week in their joint statement. . In Europe, complex FTEs have triggered a multitude of specific sales rules such as know-your-customer regulations and platform access restrictions, Nadig noted.

“If something like were to be enacted, this could apply to bitcoin ETFs, ”Senderowicz added. * Ignites is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignites.com.

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