Novel ETFs: New Strategies Push Boundaries

Novel ETFs are testing how far the ETF wrapper can expand across leveraged, private market, crypto, and event contracts. Voluntary delays for 4x, 5x, and prediction-market ETFs suggest the regulatory environment is cautious around the most complex structures. The SEC’s review could reshape how novel ETFs launch, which strategies qualify, and what investor protections accompany them.

What Are Novel ETFs? Earlier this summer, the SEC requested comments on “Novel ETFs,” broadly referring to funds offering exposure to innovative asset classes or novel investment strategies. These specifically included: crypto assets, commodity-focused instruments, single-stock strategies, heightened leverage, blockchain-enabled opportunities, private assets, and event contracts. For investors, these newer types of ETFs could provide more accessible and liquid ways to gain exposure to strategies that were previously difficult to reach, while for issuers they represent an important area of product innovation and differentiation. The formal comment period ended recently on August 31. During this time, issuers have voluntarily delayed effectiveness of filings under rule 485, while some have continued to file new ones. At its core, the Commission is evaluating whether the Investment Company Act of 1940 — and specifically Rule 6c-11 (which permits certain ETFs to operate without obtaining an exemptive order) — remain adequate for products holding non-traditional assets. Among the questions are whether the current 60 and 75 day automatic effectiveness periods provide enough time for review, whether the SEC should be able to delay effectiveness, and whether early engagement could help sponsors and regulators address potential issues earlier.

Spot Crypto ETP Launches Thrive Under a Different Framework The SEC has already streamlined the listing process for qualifying spot crypto ETPs through 2025’s Generic Listing Standards, which allow certain products to list without an individual Section 19(b) rule change. These products, however, are technically classified as commodity-based ETPs registered under the 1933 Act. The novel ETF review is focused more broadly on how crypto and other unconventional exposures fit within the registered investment company framework (1940 Act), particularly when derivatives or leverage are involved. Spot crypto ETPs continue to successfully launch this year as commodity trusts. Grayscale’s Zcash ETF (ZCSH) was uplisted on August 25, while the Canary Staked TRX ETF (TRXS) launched on September 9. Both are first of their kind, which shows how much the breadth of crypto products has widened this year. With the launch of these two products, all of the current top ten market cap cryptocurrencies (as of September 15, excluding stablecoins) now have a spot ETP. ZCSH has been particularly interesting since the underlying asset for Zcash has been up approximately 120% year-to-date partly due to its focus on privacy relative to Bitcoin. Since its late August launch, it has seen around $185 million in net inflows.

First Mover Advantage Is Significant for Pre-IPO Exposure Filings for pre-IPO private company-related ETFs present a different question. T-REX, Direxion, and other issuers have proposed leveraged products tied to companies including OpenAI, Anthropic, and Anduril, which have not yet gon...