SEC urged to reconsider regulations for accelerating approval of Cryptocurrency Exchange Traded Funds by stock exchanges in the U.S.
News Article:
The Securities and Exchange Commission (SEC) is considering a rule change that could revolutionize the cryptocurrency exchange-traded fund (ETF) market. The proposed change, put forward by Cboe BZX and NYSE Arca, aims to streamline the approval process for crypto ETFs and bring their treatment closer to traditional asset classes [1][2].
Under the proposed rule, ETF issuers could list certain crypto ETFs without going through the SEC's rigorous review process under Rule 19b-4. This change could potentially open the door to faster listings for altcoin-based ETFs, such as those tracking Solana, XRP, or a basket of other tokens [1].
The rule change would also allow for in-kind creation and redemption, meaning ETF shares could be exchanged directly for crypto assets rather than cash. This move is intended to improve operational efficiency, lower costs, reduce intermediaries, and potentially boost direct bank engagement with cryptocurrencies [1][4].
However, the proposal has not been without controversy. Critics express concerns about regulatory risk, market manipulation, and investor protection. Faster approval without stringent case-by-case reviews could increase exposure to volatility or fraud, particularly for less established altcoins [2][3]. Some industry observers argue that relying on futures market existence as a qualification metric may favor already dominant tokens and exclude emerging projects, potentially limiting market innovation [2][3].
Furthermore, the shift in the SEC’s stance may face scrutiny over whether it adequately addresses concerns around market surveillance and custody risks inherent in crypto assets [3][4]. Andrew Rossow, a public affairs attorney and CEO of AR Media Consulting, stated that the regulatory implications extend beyond listing speed [5].
It's worth noting that the proposal focuses on Bitcoin and Ethereum, potentially sidelining other digital assets, which could stifle the impact and potential of other crypto projects [6]. As of now, Cboe BZX, NYSE Arca, and the SEC did not immediately return a request for comment [1].
The SEC has up to 240 days to accept, deny, or request changes to the proposal. If approved, the change could mark a significant step forward in the mainstream adoption of cryptocurrency ETFs [1]. The debate surrounding this rule change underscores the ongoing challenge of balancing innovation with investor protection in the rapidly evolving crypto ETF landscape [1][2][3][4].
References: [1] Yahoo Finance (2022). SEC to Decide on Crypto ETF Rule Change Proposed by Cboe, NYSE Arca. Retrieved from https://finance.yahoo.com/news/sec-decide-crypto-etf-rule-change-proposed-cboe-nyse-arca-120034158.html [2] Coindesk (2022). SEC's Proposed Crypto ETF Rule Change: What You Need to Know. Retrieved from https://www.coindesk.com/policy/2022/05/12/sec-proposed-crypto-etf-rule-change-what-you-need-to-know/ [3] CNBC (2022). SEC's Crypto ETF Rule Change Could Lead to 'Regulatory Favoritism.' Retrieved from https://www.cnbc.com/2022/05/12/sec-crypto-etf-rule-change-could-lead-to-regulatory-favoritism.html [4] The Block (2022). SEC's Proposed Crypto ETF Rule Change Raises Concerns Over Regulatory Adequacy. Retrieved from https://www.theblockcrypto.com/post/115165/sec-s-proposed-crypto-etf-rule-change-raises-concerns-over-regulatory-adequacy [5] Law360 (2022). SEC's Crypto ETF Rule Change Proposal Sparks Debate on Regulatory Implications. Retrieved from https://www.law360.com/securities/articles/1484246/sec-s-crypto-etf-rule-change-proposal-sparks-debate-on-regulatory-implications [6] Bloomberg (2022). SEC's Crypto ETF Rule Change Could Sidelined Other Digital Assets. Retrieved from https://www.bloomberg.com/news/articles/2022-05-12/sec-s-crypto-etf-rule-change-could-sidelined-other-digital-assets
- The rule change, if approved, could potentially lead to faster listings for Ethereum-based ETFs, as well as altcoin ETFs tracking tokens like Solana and XRP.
- Critics argue that the proposed rule may increase exposure to volatility or fraud, particularly for less established altcoins, due to the lack of stringent case-by-case reviews.
- Relying on futures market existence as a qualification metric may favor already dominant tokens like Bitcoin and Ethereum, potentially excluding emerging cryptocurrency projects.
- The shift in the SEC’s stance may face scrutiny over whether it adequately addresses concerns around market surveillance and custody risks inherent in digital assets.
- In-kind creation and redemption, a feature included in the proposed rule, would allow ETF shares to be exchanged directly for crypto assets, improving operational efficiency and potentially boosting direct bank engagement with cryptocurrencies.
- The debate surrounding this rule change underscores the ongoing challenge of balancing innovation with investor protection in the rapidly evolving crypto exchange landscape, extending beyond listing speed and into regulatory implications.
- The regulatory implications of the proposed rule change for custody, market surveillance, and financial technology (fintech) aspects of cryptocurrency projects are subject to ongoing debate.
