SEC ETF Approval: Firms Urgently Push for ‘First to File’ Rule Return

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SEC ETF Approval: Firms Urgently Push for ‘First to File’ Rule Return

The world of cryptocurrency exchange-traded funds (ETFs) is constantly evolving, marked by significant regulatory hurdles and strategic maneuvers by asset management firms. A recent development highlights this dynamic: three prominent players – VanEck, 21Shares, and Canary Capital – have collectively addressed the Securities and Exchange Commission (SEC) with a specific request. They are advocating for the reintroduction of a principle known as “first to file, first to approve” within the SEC ETF approval process.

Understanding the ‘First to File, First to Approve’ Principle

What exactly is this “first to file, first to approve” principle that these firms are so keen on seeing reinstated? In essence, it’s a regulatory guideline that prioritizes the review and potential approval of applications based on the chronological order in which they are submitted. Under this principle, the first firm to successfully file a complete and compliant application for a specific type of financial product, like an ETF, would be the first in line to potentially receive regulatory approval.

Think of it like a queue. If multiple firms apply for the same type of ETF, the SEC would theoretically review the application from the firm that submitted it earliest before moving on to the next in line. This approach aims to provide a clear, predictable framework for applicants.

Key aspects of this principle typically include:

• Chronological Priority: Applications are reviewed in the strict order of their submission date and time.
• Incentive for Preparedness: It encourages firms to be thorough and quick in their initial filings.
• Predictability: Provides applicants with a clearer idea of when their application might be considered, relative to competitors.
• Fairness (Debated): Proponents argue it’s fair as it rewards promptness; critics might argue it disadvantages smaller or less resourced firms.

This principle isn’t new to the SEC’s processes but its application has varied, particularly in the complex and novel space of cryptocurrency-linked financial products.

The Principle’s Past and Present Context: Before Spot Bitcoin and Ethereum ETFs

As the letter from VanEck, 21Shares, and Canary Capital points out, the “first to file, first to approve” principle was indeed a part of the SEC’s ETF review process historically. This was the standard procedure for many traditional asset classes and even some earlier, less complex crypto-linked products like Bitcoin futures ETFs.

However, the landscape shifted significantly with the applications for spot Bitcoin ETF and later, spot Ethereum ETF products. The review process for these novel and highly anticipated products seemed to deviate from the strict chronological order. While there was a rush of applications, the SEC’s deliberations appeared to take a different path, potentially evaluating multiple applications concurrently or considering broader market and regulatory readiness factors beyond just the filing date.

The eventual approval of several spot Bitcoin ETFs simultaneously in January 2024, despite varying application dates, is a prime example of the SEC not strictly adhering to a “first to file” rule in that specific instance. This deviation, while perhaps necessary from the SEC’s perspective to ensure market readiness and investor protection across multiple potential issuers, created uncertainty for applicants regarding the review timeline and competitive dynamics.

Why Are VanEck, 21Shares & Canary Capital Pushing Now?

The timing of this letter from VanEck, 21Shares, and Canary Capital is strategic, coming after the landmark approval of spot Bitcoin ETFs and amidst ongoing discussions and applications for other crypto assets, most notably the potential Ethereum ETF approvals.

Their motivation stems from a desire for greater clarity, predictability, and perceived fairness in the regulatory process for future crypto-based ETFs. Here are some potential reasons behind their push:

• Leveling the Playing Field: Reintroducing the principle could create a more predictable competitive environment. Firms know that getting their application in early gives them a potential advantage in the review queue.
• Streamlining the Process: A clear order might help streamline the SEC’s internal review process, potentially leading to faster decisions once a precedent is set for a particular asset class (like Ethereum).
• Reducing Uncertainty: The current process, which doesn’t strictly follow filing order, can be unpredictable for firms investing significant resources in applications. “First to file” offers a degree of certainty regarding review priority.
• Encouraging Preparedness: It incentivizes firms to be diligent and prepared with high-quality applications from the outset to secure an early spot in the queue.
• Learning from Bitcoin ETF Experience: The experience with the Bitcoin ETF approvals, where multiple issuers were approved concurrently, highlighted the departure from the old principle. Firms may prefer the structure of the previous system for future filings.

By jointly penning this letter, these firms are signaling to the SEC the industry’s desire for a return to what they see as a more transparent and predictable review mechanism.

Potential Benefits and Challenges of Reinstating the Principle

Bringing back “first to file, first to approve” for all crypto ETFs could have various impacts:

Potential Benefits:

• Increased Efficiency: Could simplify the SEC’s workflow by focusing on one application at a time for a specific product type.
• Clear Timelines (Relative): Provides applicants with a clearer understanding of their position in the queue.
• Rewards Early Movers: Firms that invest early in understanding regulatory requirements and preparing applications are potentially rewarded.
• Reduced Speculation: Might reduce market speculation around which specific issuer will be approved first, shifting focus to when the first one might be approved.

Potential Challenges & Considerations:

• Quality vs. Speed: Could incentivize rushing applications to be first, potentially at the expense of thoroughness or quality, creating more work for the SEC.
• Complexity of Crypto: Crypto assets involve unique custodial, valuation, and market manipulation concerns that might require the SEC to review multiple applications to understand best practices or potential risks across the board before approving any.
• Market Readiness: The SEC might feel a responsibility to ensure the market is ready for a new product type and that multiple compliant options are available, rather than just approving the first one regardless of how many others are close behind.
• Disadvantage to Latecomers: Firms that enter the race later, perhaps due to needing more time for preparation or technological development, could be significantly disadvantaged.

The SEC’s decision on whether to reinstate this principle will likely weigh these factors, balancing the industry’s desire for predictability against the regulator’s mandate to protect investors and ensure market integrity, especially in the volatile crypto space.

What Does This Mean for the Future of Crypto ETFs?

The request from VanEck, 21Shares, and Canary Capital underscores the industry’s ongoing engagement with regulators and its efforts to shape the future of crypto financial products. While the SEC is not obligated to revert to the “first to file, first to approve” rule, the letter adds to the dialogue around how these applications should be handled.

For investors and market watchers, this highlights the regulatory nuances behind the launch of products like a potential Ethereum ETF. The SEC’s approach to reviewing these applications will significantly impact not only which firms get approved but also the timeline for their market entry.

Keep an eye on official SEC communications and reports from analysts like Bloomberg’s James Seyffart, who initially reported on this letter via X, for updates on how the SEC responds to this industry request and what it signals for the future of SEC ETF approval processes for cryptocurrencies.

In Conclusion: A Call for Predictability in SEC ETF Approval

The joint letter from VanEck, 21Shares, and Canary Capital serves as a clear signal to the SEC: key players in the crypto ETF space are seeking a return to a more predictable and chronological review process. By urging the reinstatement of the “first to file, first to approve” principle, they aim to streamline future applications, particularly for assets like Ethereum, building on the foundational work done during the intense period leading up to the spot Bitcoin ETF approvals.

While the SEC’s decision remains to be seen, this development highlights the ongoing push-and-pull between regulatory caution and industry innovation. A more transparent review process could benefit all market participants by providing clarity and potentially accelerating the availability of regulated crypto investment products, but the SEC must balance this against its primary mission of investor protection.

To learn more about the latest crypto market trends, explore our article on key developments shaping Ethereum institutional adoption.

This post SEC ETF Approval: Firms Urgently Push for ‘First to File’ Rule Return first appeared on BitcoinWorld and is written by Editorial Team