Statement Summary
The Commission has approved streamlined generic listing standards for commodity-based exchange-traded products (ETPs), including those involving crypto assets. This change allows exchanges to list ETPs that meet specific criteria without needing SEC approval for each product, speeding up the market introduction of new ETPs. Eligible ETPs may hold various commodities, including crypto assets, and can list if they are backed by physical or market-traded commodities, or if linked to existing ETF listings. This new approach aims to address previous concerns regarding surveillance and fraud prevention requirements, ultimately benefiting investors and the overall market by reducing regulatory delays.
Original Statement
Today, the Commission approved the generic listing and trading on three national securities exchanges of certain commodity-based exchange-traded products (“ETPs”), including ETPs holding crypto asset commodities.[1] Generic listing standards eliminate the need for prior SEC approval under Section 19(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for each individual ETP.[2] Instead, if an ETP meets the generic listing standards, an exchange must post certain information on its website regarding the ETP within five business days after commencement of trading the ETP. The streamlined listing process will benefit investors, issuers, other market participants, and the Commission by reducing the time and resources required to bring new ETPs to market.
After notorious delay and judicial prodding,[3] the Commission previously provided an initial path for an exchange to list spot crypto-based ETPs. Specifically, the Commission issued orders stating that an exchange could meet its obligations under Exchange Act Section 6(b)(5) by demonstrating that the exchange has a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference assets because such an agreement would assist in detecting and deterring fraud and manipulation related to that underlying asset. Market participants for crypto-based ETPs expressed concerns with this standard. Today’s approval order addresses these concerns by providing alternative rules-based eligibility criteria for the underlying holdings of commodity-based ETPs, including crypto asset-based ETPs.
To be an eligible holding for an ETP under the new generic listing rules, the commodity may trade on a market that is an Intermarket Surveillance Group member, or underly a futures contract traded for at least six months on a CFTC-regulated designated contract market. Alternatively, if an exchange-traded fund (“ETF”) designed to provide economic exposure of no less than 40 percent of its net asset value to a commodity lists and trades on a national securities exchange, ETPs that provide exposure to the same commodity also can list and trade on the exchanges under today’s approved generic listing standards. Currently, exchanges do not have to go through the protracted Exchange Act Rule 19b-4 review process for such ETFs given the existing generic listing standards that the SEC approved in connection with the adoption of the ETF rule under the Investment Company Act.[4] Today’s generic listing standards afford the same treatment to covered commodity-based ETPs.
An exchange still must submit a rule filing with the Commission when seeking to list and trade ETPs that do not meet the approved generic listing standards. Based on public comments in response to the exchanges’ proposals and market demand, exchanges may consider expanding their eligibility criteria over time. Exchanges, for example, could propose objective quantitative standards as another eligibility option, to enable additional products to come to market more quickly and with more predictability.
I want to thank Director Jamie Selway and his staff in the Division of Trading and Markets and other staff throughout the Commission for their diligent work on these proposed rule changes from the exchanges to adopt their new generic listing standards.
The Commission found that the exchanges’ proposed rule changes to adopt generic listing standards for Commodity-Based Trust Shares are consistent with Exchange Act Section 6(b)(5), which requires that the exchanges’ rules be designed to prevent fraudulent and manipulative acts and practices. See 15 U.S.C. § 78f(b)(5). Qualifying ETPs can hold crypto asset commodities, physical commodities, and other commodity-based assets.[2] See 17 CFR 240.19b-4(e). Under Exchange Act Rule 19b-4(e), the listing and trading of a “new derivative securities product” by a self-regulatory organization (“SRO”) is not deemed to be a proposed rule change that requires the usual Rule 19b-4 filings if the Commission has approved the SRO’s trading rules, procedures and listing standards for the product class that would include the new derivative securities product and the SRO has a surveillance agreement for the product class.[3] See, e.g., Grayscale Investments, LLC v. SEC, 82 F.4th 1239 (D.C. Cir. 2023) and Hester Peirce, Out, Damned Spot! Out, I Say!: Statement on Omnibus Approval Order for List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units (Jan. 10, 2024), See 17 CFR 270.6c-11.
