In a request for comment published on Tuesday, the regulator said it wants feedback on ETFs that invest in innovative asset classes or use novel investment strategies, in order to determine how the market can continue to evolve while protecting investors, maintaining fair and orderly markets and supporting capital formation.
The move comes after a period of rapid expansion. According to the SEC, ETF assets have risen from $4 trrn in 2019 to more than $12 trn at the end of 2025, making the sector one of the most significant developments in modern asset management.
‘Innovation in exchange-traded funds depends on a consistent, transparent and efficient regulatory framework,’ said SEC chairman Paul Atkins. He added that the consultation seeks public input on how the US ETF market can grow and innovate while serving investors effectively and that he looks forward to reviewing feedback as the Commission responds to recent market changes.
The SEC is asking whether certain novel ETFs should be treated as investment companies under existing laws, how they should be regulated and whether the current registration process remains effective as more complex structures enter the market. The consultation will remain open for 60 days after publication in the Federal Register.
The review reflects rising regulatory attention on products outside traditional ETF structures. In recent months, the SEC has scrutinized proposals involving highly leveraged strategies and funds linked to prediction markets, underlining concerns about investor protection, risk management and the appropriate treatment of emerging investment products.
Pillsbury partner David Oliwenstein, a former SEC Division of Enforcement lawyer who leads the firm’s Securities Enforcement practice, told Governance Intelligence that prediction markets ‘seem ripe for enforcement scrutiny’ because they ‘check many boxes for Chairman Atkins and the SEC under the Trump administration,’ including the potential for retail investors to suffer substantial losses over short periods.
According to Bloomberg, the consultation could lay the groundwork for broader changes to the ETF regulatory framework as policymakers assess how a rapidly evolving $16 trn industry fits rules designed for a smaller and less complex market.
The growth of ETFs into alternative asset classes, derivatives-based strategies and other unconventional exposures has challenged long-standing regulatory assumptions.
Oliwenstein said the current Commission has expressed a desire to ensure that rules and regulations keep pace with technological innovation, adding that Atkins is acting consistently with his stated intention of providing market participants with ‘clear rules of the road’ and that the announcement ‘seems to be in furtherance of that goal.’
The SEC’s initiative also reflects a wider global regulatory balancing act between innovation and market resilience. ETFs have become a preferred vehicle for institutional and retail investors, but their continued growth has raised questions about liquidity, transparency and the risks associated with increasingly specialized products.
In Europe, the European Securities and Markets Authority (ESMA) is also monitoring ETF developments, though its immediate focus has been market infrastructure and systemic risk rather than a dedicated review of novel ETF structures. In December 2025, ESMA selected EuroCTP as the EU’s first consolidated tape provider for shares and ETFs, aiming to improve transparency by giving investors a consolidated view of trading activity across European markets. ESMA’s latest risk monitoring report also noted strong ETF inflows as investors shift from active to passive strategies, while warning that geopolitical uncertainty, volatility and cyber-security threats are keeping risks elevated.
While ESMA has not announced an equivalent consultation, the SEC’s review is likely to be closely watched by European policymakers and market participants. Given the global nature of ETF product development, any significant change in the US approach could shape future European discussions on how to encourage innovation while maintaining investor protections and market stability.
Whether the consultation will result in new rules remains unclear, but it underscores regulators’ recognition that ETF innovation is testing frameworks built for an earlier generation of investment products.
Natalie Bannerman
Natalie is a former telecoms and infrastructure journalist, a role she held for nearly seven years. Before this, she worked in the B2C startup space, covering lifestyle, arts and culture reporting. As senior reporter for Governance Intelligence she...
