SEC Shifts Crypto ETF Approval Power to CFTC via Futures Rule

The U.S. Securities and Exchange Commission (SEC) has effectively shifted the decision-making power for approving crypto exchange-traded funds (ETFs) to the Commodity Futures Trading Commission (CFTC) by making futures contracts a primary requirement under a proposed rule. This framework allows cryptocurrencies with at least six months of futures trading history on the Coinbase Derivatives exchange to qualify for ETF inclusion, removing traditional metrics such as market capitalization, liquidity, or float requirements typically used for ETF listings [1].

Bloomberg analyst James Seyffart described this strategy as “pseudo-outsourcing,” suggesting that the SEC has not directly transferred authority but has instead structured the rule to depend heavily on CFTC actions. The CFTC now holds primary gatekeeping power by determining which assets can trade futures contracts, effectively shaping which cryptocurrencies can be included in an ETF structure. This indirect control raises questions about the clarity and transparency of regulatory oversight, especially as it bypasses the SEC’s typical involvement in asset evaluation [1].

The absence of traditional safeguards in the new framework represents a sharp departure from the standards applied to equity ETFs. Seyffart emphasized that the focus on futures markets, rather than broader asset evaluation, undermines the usual investor protection mechanisms. With the CFTC’s commodity designations and derivatives approvals becoming the key to SEC ETF eligibility, the regulatory landscape now operates through an indirect and decentralized mechanism [1].

Coinbase Derivatives, currently the sole cryptocurrency-focused exchange with membership in the Information Sharing Group (ISG), holds a monopoly position in determining which assets can meet the futures history requirement for ETF approval. This exclusive access allows the exchange to influence the entire ETF approval process. Seyffart noted that the bottleneck could remain until other crypto exchanges gain ISG membership, though no timeline has been outlined for such expansion [1].

The SEC’s approach may reflect a strategic reluctance to develop in-house expertise on digital assets while still fulfilling its regulatory duties over investment products. By embedding CFTC gatekeeping into the rule, the SEC avoids direct involvement in evaluating the technical or financial risks of crypto assets, yet maintains a broader oversight role. This unusual structure represents a new form of inter-agency coordination that may impact future regulatory clarity and market confidence [1].

Source: [1] SEC Pseudo-Outsources Crypto ETF Decisions to CFTC Through Futures Rule (https://coinedition.com/sec-pseudo-outsources-crypto-etf-decisions-to-cftc-through-futures-rule/)