The SEC Seeks Novel Ideas for Novel ETFs

On 30 June 2026, the US Securities and Exchange Commission (the SEC) issued a Request for Comment on Novel ETFs (the RFC). The RFC follows a statement by SEC Chairman Paul Atkins on 20 May 2026 in which he noted that “[n]ovel products raise novel questions,” and he instructed the staff to gather information from the public on how to respond to “recent market changes.”¹

The RFC, which is not itself a proposed rulemaking, seeks public comment on some of these “novel questions,” and it will likely be used by the SEC and its staff to inform future guidance or rulemaking. Several of the questions posed by the SEC in the RFC could have far-reaching implications for sponsors of exchange-traded funds (ETFs) and perhaps even sponsors of other investment products. Specifically, the RFC requests comments on the following:

• Investment company status determinations: Are there certain new ETFs that should not actually be considered an “investment company” under the Investment Company Act of 1940, as amended (the 1940 Act)?
• The ETF rule: Should Rule 6c-11 under the 1940 Act (the rule governing the operation of ETFs) be amended to address concerns arising from novel ETFs (Novel ETFs)?
• Registration statement review process: Should the SEC consider amendments to the rules governing the SEC review of Novel ETF registration statements to permit a heightened level of review?

In raising these issues, the SEC is asking some fundamental questions concerning how Novel ETFs can be structured and brought to market. As such, the RFC is important for ETF sponsors and other industry participants to consider.

Background: Why Is the SEC Seeking Comments?

As noted in the RFC, the ETF industry in the United States has grown rapidly since the first US ETFs were authorized in 1992, and it has seen particularly strong growth after the SEC adopted Rule 6c-11 in 2019. There are now over 4,600 US ETFs with assets of over US$12 trillion, and that growth appears to be accelerating.² So far in 2026, the US ETF industry has seen inflows of over US$1 trillion.³ On a global scale, there is approximately US$23.08 trillion invested in ETFs, with a record US$1.07 trillion year-to-date inflows at end of May 2026.⁴ 

While much of this activity has been fueled by the launch of ETFs following traditional passively managed (i.e., index) or actively managed investment strategies, there has also been tremendous growth in the number of products that seek to provide exposure to innovative asset classes or to use alternative investment strategies, such as single-stock ETFs, leveraged and inverse ETFs, options-based defined income or structured outcome ETFs, crypto-focused or crypto asset-linked ETFs, and ETFs that provide exposure to private assets. Other ETF providers have sought to launch “highly leveraged” ETFs that provide four or even five times leveraged exposure to underlying securities. More recently, several sponsors have sought to register ETFs that provide returns based on “event contracts” offered through prediction markets, such as Kalshi and Polymarket,⁵ while others are seeking to offer blockchain-enabled or “tokenized” ETFs. The influx of these novel strategies appears to have resulted in the questions being raised in the RFC.

The RFC groups these types of ETFs under the term “Novel ETFs,” which is loosely defined in the RFC as ETFs that “have expressed interest in providing exposure to innovative asset classes or using novel investment strategies” and calls out in particular ETFs that seek exposure to “crypto assets; commodity-focused instruments; single stock strategies; heightened leverage; blockchain-enabled opportunities; private assets; event contracts; and/or a combination of any of the above.”

Investment Company Status

The RFC asks why certain products sought to be registered as investment companies, instead of using alternate wrappers such as exchange-traded products (each, an ETP) or exchange-traded notes (each, an ETN). In that vein, the RFC questioned the following:

• If ETFs that have a principal investment strategy of investing in assets that may not be “securities” (e.g., certain real or digital assets determined to not be securities) should be treated as investment companies.
• If the SEC should revisit long-established interpretations of the “subjective test” of what constitutes an investment company under the 1940 Act. 

The RFC also raised questions about the application of the “objective test” under Section 3(a)(1)(C) of the 1940 Act, including whether investments in securities issued by wholly owned subsidiaries, which are commonly used by ETFs to gain exposure to commodities or other nonsecurity assets, should be considered part of a securities investment business. This has potentially significant implications for ETFs that rely on subsidiary structures (such as Cayman Islands subsidiaries) to maintain compliance with Subchapter M of the Internal Revenue Code of 1986, as amended, or to access certain asset classes. Such questions of investment company status have broad and sweeping implications, as many ETFs on the market today (such as commodity or futures-based products) follow investment strategies implicated by these questions. 

Rule 6c-11

The RFC also addressed questions about the operation of Rule 6c-11 and whether it should be amended. The SEC asked about topics such as the following:

• If the assets and strategies of Novel ETFs impact the efficient functioning of the ETF arbitrage mechanism and investor protection.
• If the SEC should take steps to help investors better understand Novel ETFs’ features (such as prescribed ETF/ETP/ETN labeling requirements).
• If Rule 6c-11 and the generic exchange listing rules that rely on an ETF’s ability to comply with Rule 6c-11 should be amended.
• If new ETF portfolio requirements should be added to the rule, such as restrictions on investing in certain strategies or asset classes, minimum holdings in securities, diversification and concentration limits, and more. 

The possibilities raised by the last set of questions on portfolio limitations are particularly significant, given the potential that certain types of ETF strategies could be barred or significantly hampered by such a change. Notably, the RFC also asked whether the interplay between Rule 6c-11 and the generic exchange listing standards should inform any analysis of potential changes to the rule. Because ETFs that satisfy Rule 6c-11’s conditions are eligible for listing under generic listing standards without a product-specific rule filing, any amendments to Rule 6c-11 (such as new portfolio conditions) could have cascading effects on the listing process and could require corresponding changes to exchange rules.⁶ 

Registration and Rule 485

The RFC cites concerns about whether the staff of the Division of Investment Management (IM) has sufficient time to effectively review and address legal issues given the fact that many of the Novel ETFs seek automatic effectiveness within prescribed time frames set forth in applicable registration statement rules under the Securities Act of 1933, as amended (the 1933 Act) (generally 75 days for new ETFs), and whether the IM staff has the tools to address concerns raised by the staff as part of such a review process. 

In light of those concerns, the RFC raises procedural questions around how the SEC could address registration statement review process, specifically, the following: 

• If the 75-day and 60-day automatic effectiveness periods should be extended for Novel ETFs (however defined and thereby removing the ability of ETFs to rely on predictable effectiveness and offering schedules).
• If the rules should be amended to enable the SEC to delay the effectiveness of a Novel ETF’s registration statement.
• If the SEC should develop additional mechanisms to address unresolved staff comments, such as by requiring Novel ETFs to disclose material unresolved comments.
• If Rule 485 should be amended to suspend or delay the effectiveness of a registration statement of a Novel ETF when it makes a material pre-launch change.
• If the SEC should have greater authority to suspend the effectiveness of a post-effective amendment to a Novel ETF’s registration statement. 

The SEC also noted the competitive pressure that incentivizes sponsors to submit Novel ETF filings quickly, and it invited comment on whether the SEC should consider mechanisms for early engagement for Novel ETFs, such as a pre-filing consultation process or confidential treatment for certain novel filings. In connection with competitive pressures, the RFC specifically noted that IM staff has observed Novel ETF filings submitted in rapid succession that are largely identical, and the use of artificial intelligence may be significantly accelerating the speed at which filings can be replicated. This observation may signal the SEC’s interest in developing mechanisms to address what it perceives as imitative filing practices.

While many of these procedural questions may become more acute in the context of Novel ETFs, they raise questions about the investment company registration and review process more generally. Accordingly, every fund sponsor should carefully review and consider the implications of such changes. 

Initial Reaction and Observations

Through the RFC, the SEC seems to be expressing concerns about the potential for certain novel products to undermine the significant progress ETFs have made in becoming the vehicle of choice for many investors. At the same time, the nature of some of these questions, despite being focused on Novel ETFs, may have implications for existing ETFs (and potentially investment companies generally). 

From our perspective, the biggest omission from the RFC appears to be the lack of a precise definition of “Novel ETFs.” At the start, the RFC notes that certain types of existing ETFs, such as those holding digital or private credit assets, might be deemed to have been novel, yet as a threshold matter the RFC does not itself provide a defined framework on how to determine what might be “novel.” As a result, it is unclear whether many future products would fall within the scope of this imprecise definition or, more problematically, whether such a definition might apply retroactively to existing ETFs. The lack of a precise definition is understandable in a request for comment, but nonetheless, it creates significant uncertainty about the scope of the SEC’s concerns (and therefore the scope of any resulting guidance or rule proposals).

The RFC also highlights several additional references to critical terms lacking definition, such as “unresolved staff comments,” as well as IM’s distinction between “failure to respond” to IM staff comments to draft registration statements and the “failure to resolve” them. The concerns of IM reviewing Novel ETFs includes the articulated goal of the RFC “[t]o encourage filing only fully developed” new fund series by fund sponsors. Some of the discussions are reminiscent of the Financial Industry Regulatory Authority (FINRA) complex products discussion in 2022,⁷ and they suggest that these types of Novel ETFs by definition would raise suitability concerns for FINRA members and the investors on their broker-dealer platforms.

The RFC also asked whether Rule 485(a) should be amended to require a fund’s board of directors or authorized signatories to specifically identify each new series included in a filing, drawing a parallel to Rule 483(b)’s requirement that powers of attorney relate to a specific registration statement. If adopted, such a requirement could impose additional governance burdens on fund complexes that register multiple series simultaneously and could slow the pace at which new ETF series that do not implicate the issues raised in the RFC could be brought to market.

What Is Next?

As noted above, the RFC is not a rulemaking; it is an information-gathering exercise for the SEC and its staff. As more industry stakeholders have the opportunity to review the RFC and consider the potential impact and implications of the questions raised, we would encourage market participants in the ETF industry to pay attention to the following points and consider whether providing their input by comment letter is beneficial. Areas that might benefit from industry input include the following:

• Whether any current or planned ETF structuring includes certain sub-trust accommodations to ensure regulated investment company compliance, and whether changes in treatment or industry description might be impactful.
• Whether potential new asset class exposures and novel structures considered for an ETF might be impacted by the questions presented in the RFC.
• Whether new ETF product initiatives have been or may be impacted by the uncertainty of delay and prolonged disclosures to competitors, including ways in which this IM review process could be improved and made more fair and transparent for fund sponsors, especially for smaller and emerging managers.
• Whether a potential new fund naming and disclosure regime for certain ETFs might be adversely impactful to the management and distribution of current or planned funds.

We also note the RFC appears to have been developed by IM’s chief counsel’s office or disclosure review teams and not from IM’s rulemaking staff.⁸ This may signal that rulemaking is not immediately on the horizon, and instead, the SEC may wish to manage the questions raised in the RFC through guidance or a disclosure review process before turning to rule amendments. 

We are continuing to develop our reactions to the RFC and are engaging with industry participants in connection with the questions raised therein. We look forward to developing additional ideas and working with our clients on potential approaches. 

Comments on the RFC are due 60 days after publication in the Federal Register. Assuming the RFC is published within a reasonable time period, the comment deadline will likely be at some point in September 2026.