SEC Issues New Crypto ETF Disclosure Rules

The Securities and Exchange Commission's Division of Corporation Finance issued new guidance Monday detailing disclosure requirements for crypto asset exchange-traded products, marking the regulator's most detailed framework yet for the crypto ETF market.

The guidance addresses how federal securities laws apply to crypto ETFs, which are investment products that hold digital assets like Bitcoin or use derivative instruments tied to crypto prices, according to the statement. These products trade on national securities exchanges and are typically structured as trusts.

The new guidance comes as crypto ETF interest has surged following Bitcoin and Ethereum ETF launches, including the iShares Bitcoin Trust (IBIT) and iShares Ethereum Trust (ETHA), with numerous filings now pending for smaller digital assets including Solana, XRP and Litecoin. The framework provides clarity for issuers navigating complex disclosure requirements while protecting investors in these emerging financial products.

According to the statement, the Division observed common issues during reviews of crypto ETF filings and aims to help issuers understand specific disclosure requirements under the Securities Act of 1933 and Securities Exchange Act of 1934.

Risk and Custody Requirements Detailed

The guidance requires issuers to provide detailed risk factor disclosures specific to crypto assets and markets, according to the statement. These must include risks related to price volatility, theft of private keys, hacking incidents and potential manipulation on crypto trading platforms.

Custody arrangements receive extensive attention in the new requirements. Issuers must disclose storage policies for private keys, including whether they use cold, warm or hot storage methods, and explain who has access to private key information, according to the statement.

The guidance also mandates disclosure about underlying crypto assets and their associated networks. This includes information about how digital assets are generated, the consensus mechanisms used and any fees associated with network usage, according to the statement.

Operational Requirements Take Center Stage

Service provider relationships must be thoroughly documented under the new guidance. Issuers must identify authorized participants who facilitate share creation and redemption, describe material contract terms and file these agreements as exhibits to registration statements.

Fee structures require clear explanation under the guidance. Issuers must detail how sponsor fees are calculated, which expenses are covered and any arrangements for paying fees using the trust's crypto asset holdings.

The statement addresses voting rights and securities descriptions, requiring issuers to explain circumstances under which shareholders can vote and any limitations on those rights.

Financial reporting receives specific treatment for multi-series trusts. The SEC requires separate financial statements for each individual series in addition to consolidated trust statements, according to the statement.