SEC questions novel ETF framework as prediction fund approvals stall

The U.S. Securities and Exchange Commission has opened a public consultation on how novel exchange-traded funds should be regulated, as decisions on several prediction market ETF applications remain on hold.

According to a statement from the U.S. Securities and Exchange Commission, the regulator is seeking public feedback on exchange-traded funds that invest in new asset classes or use investment strategies that fall outside traditional ETF structures.

The request asks market participants to weigh in on how innovation can be accommodated while continuing to protect investors, preserve fair and orderly markets, and support capital formation.

The consultation arrives while the SEC continues reviewing several prediction market ETF proposals. Applications from asset managers including Roundhill, Bitwise, and GraniteShares remain pending as the regulator evaluates whether current securities rules are suitable for funds designed to track contracts listed on prediction market platforms such as Polymarket.

SEC reviews whether current ETF rules fit new investment products

In its request for comment, the SEC said market participants have questioned whether funds investing primarily in assets that are not securities qualify as investment companies under the Investment Company Act.

According to the regulator, the issue also raises questions about whether such products should register under the Act or fall outside its scope.

The SEC also requested feedback on how the so-called “Subjective Test” should apply to these products. According to the Commission, uncertainty exists over whether funds focused on non-security assets can satisfy the legal standards required under the current framework.

Another issue under review involves exchange listing procedures. The SEC questioned whether existing generic listing standards should continue to apply to novel ETFs, including the process that allows a registration statement to become effective after 75 days.

According to the request, the agency is evaluating whether those standards remain appropriate for funds using investment strategies that differ from traditional ETFs.

Beyond classification and listing requirements, the Commission also raised concerns about competitive behavior in the ETF industry. According to the SEC, sponsors may feel pressure to submit applications quickly in an effort to gain a first-mover advantage, potentially resulting in rushed filings, incomplete disclosures, or products that are never launched.

To address those concerns, the regulator asked whether it should introduce a minimum registration fee that could later be credited against redemptions. It also requested comment on allowing ETF filings to remain confidential for part of the 75-day review period before automatically becoming public, arguing that such an approach could reduce copycat filings while giving applicants more room to develop new products.

SEC continues reviewing multiple crypto market rules

The consultation comes as the Commission is simultaneously examining several other areas of digital asset regulation. Earlier, the SEC and the U.S. Commodity Futures Trading Commission requested public comment on a coordinated regulatory framework for crypto perpetual futures, while the SEC has also delayed guidance related to tokenized securities because of unresolved regulatory questions.

Separately, the SEC has continued enforcement activity alongside its rulemaking work. According to the agency’s litigation release, a federal court entered a final default judgment against NanoBit Limited and related defendants, ordering about $5.52 million in penalties, disgorgement, and interest over allegations that the company operated a fraudulent crypto trading platform and falsely claimed an affiliate was registered with the SEC.