The Securities and Exchange Commission’s new chairman, Paul Atkins, has instructed agency staff to issue a formal request for public comment on novel exchange-traded fund proposals, according to sources familiar with the directive. The move signals a potentially more open regulatory posture toward innovative ETF structures, including those tied to digital assets, leveraged strategies, or unconventional asset baskets.
What counts as a novel ETF
The SEC has not yet defined the scope of “novel ETFs,” but the term typically covers products that deviate from traditional index-tracking or actively managed funds. Examples include ETFs that hold cryptocurrencies directly, use derivatives for amplified returns, or invest in illiquid assets like private credit. Previous SEC leadership often blocked or delayed such products, citing investor protection concerns.
Atkins, who took office in January, has previously expressed interest in modernizing securities rules. By seeking public input, he is opening the door for industry participants, investor advocates, and academics to weigh in on what types of novel ETFs should be permitted and under what conditions.
The public comment process
Staff are expected to publish a request for comment in the Federal Register within weeks, kicking off a 60-day period for submissions. The SEC will then review responses before deciding whether to propose formal rule changes or issue guidance. The process is standard for major policy shifts but marks a departure from the agency’s recent pattern of case-by-case denials.
“This is a chance for the SEC to hear from the people who actually use and issue these products,” said a former SEC attorney not authorized to speak publicly. “It’s a signal that Atkins wants a rulemaking framework rather than relying on enforcement.” The attorney’s comment, though not directly quoted in the directive, reflects a common interpretation among regulatory observers.
ETF issuers have long pushed for clearer guidelines on novel products. Companies like BlackRock and Fidelity have filed for spot crypto ETFs, while smaller firms have proposed leveraged single-stock ETFs. Without explicit rules, issuers face uncertainty and long waiting periods.
For investors, the public comment period offers a chance to voice concerns about risks. Novel ETFs can bring higher fees, tracking errors, or volatility. The SEC’s eventual framework will likely include disclosure requirements, liquidity standards, and leverage limits.
The comment period is expected to open within 30 days. Industry groups are already preparing detailed submissions, and investor advocates are urging the SEC to prioritize transparency. Whether Atkins’ push leads to faster approvals or stricter guardrails remains an open question — one the comment process is designed to answer.
