The US Securities and Exchange Commission is signaling a potential rethink of how it oversees exchange-traded funds after a recent wave of filings for prediction-market ETFs prompted fresh scrutiny of the existing regulatory framework.
Rather than focusing solely on those novel products, the agency is taking a much broader look at whether its approach to ETF regulation remains fit for a rapidly evolving $16 trillion industry. Among its ideas: giving ETF filers greater confidentiality while their paperwork is under review to prevent copycats duking it out for first-mover advantage. In a request for comment published Tuesday, the regulator asks whether there should be additional circumstances under which it could suspend the effectiveness of an ETF’s registration or otherwise intervene after a fund becomes effective.
The comment process could lay the groundwork for a more comprehensive oversight structure for ETFs, seeking feedback on whether the agency has adequate tools to oversee an increasingly complex and fast-growing market. Respondents have 60 days to reply.
Under the current framework, the SEC does not formally approve or reject ETFs. Instead, its primary enforcement mechanisms are largely limited to suspending the effectiveness of ETF shares.
“We really only have one tool to regulate an ETF that we’re not happy with,” Brian Daly, the SEC’s director of the Division of Investment Management, told Bloomberg News in an interview.
The agency is also seeking comment on whether certain aspects of the filing process should be eligible for confidential treatment. As it stands, ETF submissions to the SEC are made public, enabling other firms to swiftly follow with copy-cat applications. Daly argues that the process can at times seem “ferocious” as issuers race to capture first-mover advantages. He says, for instance, that the agency stumbled in its rollout of crypto-tied funds in 2024, in which firms vied for a first-to-market edge that many presumed would give them access to early inflows.
“In a ‘first mover wins’ environment, it is essential that sponsors have comfort that the process will not penalize thoughtful pre-effectiveness collaboration with the SEC staff,” he said.
The move comes after SEC Chairman Paul Atkins in May instructed staff to seek public input on prediction market ETFs, vehicles that would allow investors to wager on the outcomes of events ranging from elections to economic data releases. Such funds — if launched — would represent the latest frontier within the growing industry and would test the boundaries of what can be packaged into an easy-to-trade vehicle.
Still, putting out RFCs does not necessarily lead to rulemaking, Daly said. But it could allow the agency to address problems in a more tailored way through measures like exemptive relief or staff no-action letters.
“This RFC is about process, not about any particular ETF fund structure or asset class. In fact, our goal is to ensure that our review process can handle today’s novel exposures and structures — as well as strategies yet to be invented,” Daly said.
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