The U.S. Securities and Exchange Commission (SEC) announced on September 17 local time that it has voted to approve rule change proposals from three national securities exchanges, allowing the adoption of universal listing standards for exchange-traded products (ETPs) that hold physical commodities, including digital assets. These exchanges can list and trade shares of commodity trusts that meet the approved universal listing standards without having to submit a rule change proposal to the SEC in advance under Section 19(b) of the Securities Exchange Act.
SEC Chairman Paul S. Atkins stated: "By approving these universal listing standards, we are ensuring that our capital markets remain the best place in the world for cutting-edge innovation in digital assets. This approval helps maximize investor choice and foster innovation by streamlining the listing process and lowering the barriers for digital asset products in the trusted U.S. capital markets."
Jamie Selway, Director of the SEC's Division of Trading and Markets, said: "The Commission’s approval of universal listing standards provides the investment community with much-needed regulatory clarity and certainty by enabling products to come to market through a reasonable, rules-based approach while ensuring investor protection."
In addition to approving universal listing standards for commodity-based trust shares, the SEC also approved the listing and trading of the Grayscale Digital Large Cap Fund, which holds spot digital assets based on the CoinDesk 5 Index. The SEC also approved the listing and trading of PM-settled options on the Cboe Bitcoin U.S. ETF Index and the Mini Cboe Bitcoin U.S. ETF Index, with expiration dates including the third Friday, non-standard expiration dates, and quarterly index expiration dates.
SEC Commissioner Hester M. Peirce subsequently issued a statement explaining the approval of universal listing standards for commodity-based ETPs. The statement noted that the SEC approved the universal listing and trading of certain commodity-based exchange-traded products ("ETPs"), including those holding crypto asset commodities, on three national securities exchanges. The universal listing standards eliminate the requirement for each ETP to obtain prior SEC approval under Section 19(b) of the Securities Exchange Act of 1934. Instead, if an ETP meets the universal listing standards, the exchange must post certain information about the ETP on its website within five business days after trading begins. The streamlined listing process will benefit investors, issuers, other market participants, and the SEC by reducing the time and resources required to bring new ETPs to market.
The statement mentioned that after experiencing widely criticized delays and judicial pressure, the SEC had previously provided an initial pathway for exchanges to list spot cryptocurrency-based ETPs. Specifically, the SEC issued an order stating that exchanges could meet their obligations under Section 6(b)(5) of the Securities Exchange Act by demonstrating that they have entered into comprehensive surveillance-sharing agreements with regulated markets of significant size for the underlying or reference assets, as such agreements would help detect and deter fraud and manipulation related to those assets. Market participants for cryptocurrency-based ETPs expressed concerns about this standard. Today’s approval addresses these concerns by providing a rules-based alternative eligibility standard for the underlying assets of commodity-based ETPs, including crypto asset-based ETPs.
Under the new universal listing rules, to qualify as an eligible holding asset for an ETP, a commodity must be traded on a market that is part of an intermarket surveillance group, or its futures contracts must have been traded on a designated contract market regulated by the Commodity Futures Trading Commission (CFTC) for at least six months. Alternatively, if an exchange-traded fund (ETF) providing economic exposure of at least 40% of its net asset value to a commodity is listed and traded on a national securities exchange, an ETP offering exposure to the same commodity may also be listed and traded on that exchange under the universal listing standards approved today. Currently, given the universal listing standards previously approved by the SEC under the ETF Rule adopted under the Investment Company Act, exchanges are not required to undergo lengthy Section 19b-4 review processes for such ETFs. Today’s universal listing standards provide the same treatment for ETPs covering commodities.
Exchanges seeking to list and trade ETPs that do not meet the approved universal listing standards must still submit rule filings to the SEC. Based on public feedback on exchange proposals and market demand, exchanges may consider gradually relaxing their eligibility standards. For example, exchanges could propose objective quantitative criteria as an alternative eligibility option to enable more products to enter the market more quickly and predictably.
