Asset managers VanEck, 21Shares and Canary Capital have jointly approached the US Securities and Exchange Commission (SEC) seeking for a reinstatement of the first-to-file principle i.e. a regulatory approach that ensures exchange-traded products (ETP) applications are reviewed and approved in the order they are submitted. The trio of prominent investment firms claims that the Commission’s recent departure from this standard has stifled innovation and created an uneven playing field, among other negative consequences.
SEC’s Shift From ‘First-To-File’ Principle Signals Favoritism: ETF Issuers
In an email addressed to SEC Chairman Paul Atkins on June 5, CEOs of VanEck, 21Shares and Canary Capital in the persons of Jan van Eck, Duncan Moir, and Steven McClurg outlined a deep grievance with the Commission’s abandonment of its first-to-file principle and the adoption of simultaneous approval approach towards recent ETP applications. The letter explained that the “first-to-file” rule acted as a strong pillar of fairness which supported innovation, and a first-mover advantage. This approval model allegedly created a competitive market landscape as smaller asset managers were able to seize significant market shares of a particular product to increase their general standing. A statement from the letter explains:
…If multiple sponsors were working in parallel on similar ideas, those filing first were first in line to receive market approval. This has enabled the ETP industry to grow to $15.4 trillion in investor assets. Newer, innovative companies like Wisdomtree have been able to become industry leaders; it’s not necessarily established mutual fund companies that have gained high ETP market share.
However, the head executives at VanEck, 21Shares and Canary Capital explain that the SEC’s shift to a simultaneous approval method as seen with the Bitcoin spot ETFs and Ethereum spot ETFs in 2024 completely undermines the need for innovation in the ETP industry. They also strongly claim that this approach signals a favouritism towards bigger asset managers who are able to comfortably copy the products of other firms with an assurance of securing the same launch date from the Commission. While Van Eck, Moir and McClurg acknowledge the potential reasons for simultaneous approval such as reducing the work burden on the Commission’s staff, they maintain the “first-to-file” is integral to upholding the regulatory integrity of the US ETP market. They urge a swift return to this governance standard which they claim will ensure financial innovation, creativity and competition.
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