ETF Issuers Issue Urgent Plea to SEC on Crucial ‘First-to-File’ Rule

Are you waiting for more crypto investment options? The pace of new crypto ETFs hitting the market directly impacts investor choice and opportunity. Recently, prominent ETF issuers have raised concerns about the process governing these approvals, sending a strong message to regulators.

Why are ETF Issuers Concerned About SEC Approval?

A group of leading ETF issuers, including VanEck, 21Shares, and Canary Capital, have formally written to the U.S. Securities and Exchange Commission (SEC). Their core message? They want the SEC to revert to the long-standing “first-to-file” principle for approving exchange-traded fund applications.

Traditionally, regulatory bodies would review and approve applications in the order they were received. However, the SEC appears to have moved away from this method, particularly concerning crypto-related financial products. The issuers argue this shift has negative consequences for the market and for those developing new investment vehicles.

Understanding the ‘First-to-File’ Principle

The first-to-file principle is straightforward: the regulator reviews applications based on their submission date. The first complete and compliant application gets considered first. This approach provides a clear incentive for companies to invest resources early in developing innovative products and preparing thorough filings.

The letter from VanEck, 21Shares, and Canary Capital emphasizes that abandoning this method:

• Diminishes incentives for pioneering product development.
• Rewards less proactive behavior from other filers.
• Reduces investor choice by slowing down the introduction of new products.
• Compromises market efficiency.
• Undermines the SEC’s stated mission of protecting investors and facilitating capital formation.

They believe that the United States’ leadership in financial innovation is tied to regulatory frameworks that support and reward entrepreneurship and creativity.

What’s Happening with Crypto ETFs Now?

Despite growing institutional interest and a surge in crypto ETFs filings, the SEC has recently delayed decisions on several applications. This includes postponements for spot Solana (SOL) Trust ETFs, as well as various staking and XRP (XRP) ETFs. Many analysts weren’t surprised by these delays, noting the SEC often uses the full review period allowed for 19b-4 filings, with many current deadlines pushed into later in the year.

Adding to the complexity, the SEC recently raised questions about the structure of certain staked ETFs, suggesting they might not fit the typical ETF definition due to the underlying fund’s business model. This regulatory scrutiny has caused further delays, even for products analysts initially thought were close to launch.

Does the Current Process Hinder Financial Innovation?

According to the issuers, yes. By not adhering to first-to-file, the current process can disincentivize companies from being the first to invest heavily in researching, developing, and filing for novel products like specific crypto ETFs or staked variations. If there’s no clear advantage to being first, the motivation to innovate and bear the initial costs is reduced. This potentially slows down the overall pace of new investment options becoming available to the public.

Conclusion: A Call for Clarity and Consistency in SEC Approval

The letter from these prominent ETF issuers highlights a significant concern within the financial industry regarding the regulatory process for new investment products, particularly crypto ETFs. They argue that a return to the transparent and incentive-aligned first-to-file principle is essential for fostering healthy competition and driving continued financial innovation in the United States. As the SEC continues to navigate the complex landscape of digital assets, industry participants are clearly advocating for clearer, more predictable pathways for product approval.