The complex” ETP probe of the SEC could affect crypto ETFs

The note of the Securities and Exchange Commission that it will take a closer look at how it regulates complex stock markets that have regulated products, has an impact on the future Bitcoin ETF rules, say lawyers and analysts.

Last week, the second chairman Gary Gensler instructed the employees to examine the risks of ETFs with strategies that are “more complex than typical stocks and bonds”, and to design possible rules to clear this concerns.

as examples of complex ETPs, Gensler gave levered and inverse strategies. However, the Commissioners Allison Herren Lee and Caroline Crenshaw suggested that all new regulations would cover ETPs that are not regulated by the investment Company Act, such as listed debits, raw material pools and other structured bonds.

"Although there are differences in the structure of these products, you can pose similar risks for investors and the markets, and the Commission should endeavor to pursue a uniform approach to the management of such risks to ensure that our regulations do not create unnecessary opportunities for supervisory arbitration." “, Wrote in an explanation.

The story indicates that the SEC wants to control when and how crypto-ETFs come onto the market, said Jeremy Senderowicz, shareholder at Vedder Price.

"With Bitcoin you probably don't want to enact a general rule too quickly," he said.

In the past, the SEC commissioners had used the standard process for the listing-known as a 19b-4 process-to check and approved the first generation of new ETF concepts, including the first fixed-interest ETFs and active intelligent strategies, he said.

The work of the SEC on ETFs is also part of a more comprehensive project to contain cryptofinancing, which Gensler described as "Wild West or the old world of'bowing 'that existed before securing securities laws".

"This investment class is full of fraud, fraud and abuse for certain applications," Gensler told the Financial Service Committee of the House of Representatives in prepared comments. "We can do it better."

A lawyer expressed concerns, however, that if the supervisory authorities do not soon deal with crypto ETFs or at least create a framework for how they could be checked by new complex ETP regulations, the risk is that more investors would look for access outside the jurisdiction of the seconds.

"It is easier to get a clearer picture of what you will regulate in the future if you make it clear what you regulate now," said M Ridgway Barker, Chairman of the Corporate Finance Group at Withersworldwide. The Bitcoin market has grown quickly since the SEC started examining the first of these products five years ago, he noted.

The SEC may want to concentrate its regulatory efforts to demand the clarification of their existing disclosures of complex ETFs instead of creating new ones, he added.

But even if Bitcoin was not specifically addressed when the additional regulation of complex ETPs, such products could be obtained into new sales practice rules for ETPs, according to Vedder Price and Dave Nadig, Director of Research and Chief Investment Officer from ETF Trends.

The decision of the SEC, stricter diligence to remove levered and inverse ETFs from the final derivative rule, prompted Crenshaw and Messrsive Lee to refuse their approval for the regulation.

All new complex ETP rules should "renew these efforts and consider to expand them beyond registered investment companies in order to achieve other types of complex stock markets," they said in their joint explanation.

In Europe, complex ETPs triggered a variety of specific sales rules, such as know-your-customer regulations and access restrictions for platforms, Nadig.

"If something like [Sales restrictions] are enacted, this could apply to Bitcoin ETFs," added Senderowicz.

*Ignites is a intelligence service from FT Specialist for experts from the asset management industry. It covers everything, from the introduction of new products to regulations and industry trends. Test versions and subscriptions are available at ignites.com .