On June 30, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) published a Request for Comment (the “RFC”) on what it calls Novel ETFs, defined in the release as funds “seeking to invest in innovative asset classes or engage in novel investment strategies.”[1] The category covers crypto asset funds,[2] single-stock and leveraged strategies,[3] blockchain-settled products, private asset funds, and event contracts that pay out based on specific outcomes rather than price.
The questions in this RFC will shape whether and how those product categories get to market, and could expand the range of structures available in the regulated system. Comments are due August 31, 2026.[4]
The Shift Toward Granularity
Financial markets have been getting more precise about what investors can take a position on for decades. Futures isolated price from ownership. Options separated direction from volatility. Credit default swaps let investors express a view on creditworthiness without touching equity. Each generation of instruments expanded what investors could specifically target, not just a company or a commodity, but a specific dimension of risk or outcome, independent of elements attached to it.
What Wall Street did for decades through financial engineering, blockchain made available to anyone who could write a smart contract. If a result could be measured, it could be traded. As a result, the range of outcomes and assets that could be invested in expanded far beyond what traditional markets covered. For example, a private credit fund made tradeable through an intraday ETF wrapper (private asset ETF), or a position on whether a piece of legislation passes or who succeeds a long-tenured CEO (event contracts). Products and exposures that had no investable form a decade ago.
Most of that recent growth happened outside of clear regulation, as the products sat at the intersection of (or perhaps outside of) securities law, commodities law, and investment company law. The Novel ETF RFC is the SEC asking how its portion of that framework, specifically the Investment Company Act and the rules that govern ETF registration and operation, should handle the new products arriving at the Commission.
Lead Up to This RFC
Exchange-traded funds, or ETFs, are investment vehicles that trade on an exchange throughout the day like a stock, but hold an underlying portfolio of assets whose value the ETF’s share price is designed to track closely. That tracking depends on an arbitrage mechanism, typically involving large financial institutions called authorized participants who can create or redeem shares to keep the market price in line with the value of the underlying holdings. Most ETFs are registered and regulated as investment companies under the Investment Company Act of 1940, which the SEC administers alongside the rules that govern how those funds may actually operate day to day.
SEC Chairman Paul Atkins’ June 30 statement framed the RFC as an exercise in facilitation: “Innovation in exchange-traded funds depends on a consistent, transparent, and efficient regulatory framework.”[5] But the RFC is arriving against the backdrop of a market that has grown dramatically and products that differ from what drove that growth.
ETF assets grew from $4 trillion in 2019 to over $12 trillion by the end of 2025, driven in significant part by a framework adopted that year that let any fund meeting standard structural conditions launch as an ETF without seeking a product-specific exemptive order from the Commission.[6] That framework was designed for funds holding conventional securities, publicly traded stocks and bonds with continuous observable prices that fit within existing regulatory categories.
The products now seeking approval are different. They hold assets that either may not be securities, don’t have continuous observable prices, or pay out based on specific outcomes rather than price appreciation. Several sponsors filed a number of event-contract ETF applications in February 2026, which are among the most visible examples.[7] Those filings were approaching the end of the standard 75-day review window when Chairman Atkins acknowledged on May 20 that fund sponsors had voluntarily delayed effectiveness “while we consider the implications.”[8]
What the RFC Is Actually Asking
The SEC’s questions cluster around six themes.[9]
Legal eligibility and classification. The threshold question is whether Novel ETFs qualify as investment companies, which test applies to make that determination, and what regulatory framework would apply to a product that doesn’t qualify. The RFC doesn’t assume the answer is the same for every product category, and it asks specifically whether a fund that holds its assets through wholly-owned subsidiaries changes the analysis. For some Novel ETFs, the conclusion may be that they belong in a different category of exchange-traded product entirely, subject to different rules and regulations. A fund that doesn’t qualify as an investment company can’t use the efficient pathway that drove the ETF market’s growth since 2019. It would need product-specific exchange rule filings and individual SEC review, reversing what the 2019 framework was designed to eliminate.
Whether existing ETF mechanics work, and whether new controls are needed. ETFs function because large financial institutions continuously arbitrage any gap between an ETF’s market price and the value of its underlying assets, keeping the two close. The RFC’s central question for this theme is whether that mechanism holds up when the underlying assets don’t trade like ordinary securities. A crypto token trading on an exchange with different market hours and settlement conventions raises different questions than a private credit fund with no continuous price, which raises different questions again than an event contract that resolves to a binary outcome. If the mechanism doesn’t hold up cleanly, the RFC asks whether the fix is new portfolio-level controls like concentration limits, diversification requirements, or asset exclusions, and how any new conditions would interact with the listing standards that exchanges already impose on ETFs independently of the Commission’s rules.
Whether the SEC has adequate tools to manage novel filings. Under existing rules, ETF registration filings can become automatically effective within a prescribed window, which was designed for straightforward products with well-understood legal profiles. The RFC’s gating question is whether that window gives the SEC enough time to identify and work through the novel legal issues these products raise before they reach investors, and whether the Commission needs additional authority to delay or toll effectiveness on its own initiative when issues remain unresolved at the deadline. The RFC also probes the edge cases, including filings that seek to become effective before their investment strategy can actually be implemented, and the risk that extended review periods could themselves cause unnecessary delays for sponsors trying to respond to market demand. And it asks whether earlier engagement through pre-filing consultations or confidential draft filings would produce better outcomes than the current process, where the SEC and the public often see a novel filing for the first time simultaneously.
Filing integrity, competitive dynamics, and first-mover incentives. The RFC identifies two dynamics currently driving behavior in the registration process. When one firm files for a Novel ETF structure, competitors can see the filing immediately and rush their own versions into the queue, which can produce premature or incomplete filings and a wave of funds that never launch. And the Commission notes that AI is accelerating how quickly a competitor can replicate a novel filing. These dynamics feed an overarching question about how to balance the flexibility sponsors want against the Commission’s interest in a fair and orderly registration process. From there the RFC gets specific. It asks whether keeping filings nonpublic for part of the review period would reduce the incentive to file copycat products, whether a fund’s board should be required to specifically identify and approve each new series as a check on underdeveloped submissions, and whether funds that go effective but never actually launch should be automatically deregistered after a defined period.
Mid-process changes, unresolved comments, and suspension authority. The RFC raises three related but distinct questions in this area. First, whether funds should be required to disclose material unresolved staff comments to investors, a transparency requirement that already exists for other categories of registered entity but not currently for ETFs. Second, whether the existing rules adequately address what happens when a fund’s investment strategy changes materially during the review process or before launch, and whether a simpler filing mechanism is being used in ways it was not designed to accommodate. Third, whether the Commission should have expanded authority to suspend a filing or pull back a specific series after it has already gone effective, a tool the SEC currently has limited ability to deploy once a product is live.
Disclosure and investor clarity. This theme focuses on whether investors actually understand what Novel ETFs are and how they differ from conventional ETFs, and whether the Commission should take steps to make that clearer through enhanced disclosure requirements. Broadly, the SEC asks whether the existing ETF disclosure framework, designed for funds that hold baskets of securities, needs to be updated for products that work in fundamentally different ways. And more specifically, the RFC flags confusion caused by some exchange-traded products that are not registered investment companies using the ETF label in their names, and it asks what investors make of that and whether it creates problems the Commission should address.
The Takeaway
The RFC reflects the SEC’s dual mandate to facilitate innovation and protect investors. Chairman Atkins has framed the process as facilitation, though several of the RFC’s questions would give the Commission more authority to delay, suspend, or restrict Novel ETF launches.
The upside of getting this process right is significant. For private assets, solving the liquidity mismatch would open private equity, private credit, and real estate to a far broader investor base than the interval funds and private vehicles that reach them today. For blockchain-settled products, a workable answer on on-chain settlement would enable structures that don’t exist in traditional ETFs at all, including continuous settlement, programmable redemption, and real-time portfolio transparency. These are not marginal improvements to existing products. They are new capabilities that depend entirely on how the Commission resolves the mechanics questions.
Some of what the RFC explores could warrant new friction in the registration and operation processes. If a Novel ETF’s arbitrage mechanism doesn’t actually hold up, investors could face gaps between the price they see and what they can get for their shares. If event contracts are packaged into an ETF wrapper before the disclosure framework accounts for how binary outcomes work, investors may not understand what they own. Those are real problems worth solving before products reach retail investors.
Other questions could lead to friction that limits access without clearly adding investor protections. Extending review timelines across the board, regardless of the complexity of the legal issues in a given filing, could delay investor access without calibrating that delay to actual risk. Moreover, the products in the queue are not the same and a framework that treats them identically could either underprotect investors in the riskier categories or overly restrict access in the simpler ones.
That is really a question of calibration, and it is the same question underlying the whole RFC. The decades-long move toward granularity happened inside a carefully regulated system, but the recent acceleration did not. This RFC is the SEC’s first step to understand what bringing those newer products inside the field of play could mean. How the Commission balances innovation, investor risk, and administrative capability will ultimately shape which products reach the market and which don’t.
[1]Request for Comment on Novel ETFs, Securities Act Release No. 33-11426, 91 Fed. Reg. 40,647 (July 2, 2026) [hereinafter Novel ETFs RFC].
[2]Crypto asset ETFs hold or provide exposure to digital assets. Existing spot bitcoin and ether ETFs are not in scope for this RFC, because they registered as exchange-traded commodity trusts under the Securities Act, a framework that sits outside the Investment Company Act. See Novel ETFs RFC, supra note 1, at 40,647 n.1. The RFC’s crypto questions concern the next generation of products seeking the investment company pathway, including altcoin funds, basket products, and funds that hold staked assets or participate in protocol governance.
[3]Single-stock ETFs hold or provide exposure to a single company rather than a diversified basket. Leveraged ETFs use derivatives to amplify daily returns, typically by two or three times, and inverse versions profit when the underlying falls. Both exist in the market today, but neither fits the diversification assumptions built into the original ETF framework, which is part of why the RFC asks whether they need product-specific conditions like concentration limits or leverage caps. See Novel ETFs RFC, supra note 1, at 40,648.
[4]Novel ETFs RFC, supra note 1, at 40,647. Comments are due 60 days after Federal Register publication, or August 31, 2026.
[5]Press Release, SEC, SEC Seeks Public Comment on Novel Exchange-Traded Funds (June 30, 2026) [hereinafter SEC Press Release].
[6]Novel ETFs RFC, supra note 1, at 40,647 (reporting growth in ETF net assets from over $4 trillion to over $12 trillion between year-end 2019 and year-end 2025 following the 2019 adoption of Rule 6c-11).
[7]A number of event-contract ETF applications were filed in February 2026 and were widely reported. See, e.g., Steve Randall, SEC Chief Atkins Signals Caution on Prediction Market ETFs Amid Broader Rethink of Novel Fund Structures, InvestmentNews (May 21, 2026).
[8]Paul S. Atkins, Chairman, SEC, Statement on Novel Exchange-Traded Funds (ETFs) (May 20, 2026).
[9]The characterization of the RFC’s questions throughout this section is drawn from the release itself, which poses 27 numbered questions across sections on investment company status, Rule 6c-11, and the registration process. See Novel ETFs RFC, supra note 1, at 40,648-51.
