Securities Industry Lobbying for SEC to Reinstate 'Priority Filing' Rule - Insights
SEC's Shift from 'First-To-File' Principle Under Fire: ETF Issuers Call out Favoritism
In a scathing email sent to SEC Chairman Paul Atkins on June 5, the big guns at VanEck, 21Shares, and Canary Capital - Jan van Eck, Duncan Moir, and Steven McClurg - let the commission have it regarding their departure from the 'first-to-file' principle and the adoption of the simultaneous approval approach for ETP applications. They lambasted the move, stating it's stifled innovation, created an unfair playing field, and signaled favoritism towards bigger asset managers.
The trio of investment heavyweights argued that the 'first-to-file' rule had been a cornerstone of fairness that fostered innovation and supporting a first-mover advantage. With the simultaneous approval method, as seen in the 2024 Bitcoin spot ETFs and Ethereum spot ETFs, smaller ETF issuers lost their edge, allowing the big players to copy products and secure the same launch date from the SEC, reports the email.
While acknowledging potential reasons for simultaneous approval, such as relief on the Commission's staff workload, the trio maintained that the 'first-to-file' principle is crucial to upholding the regulatory integrity of the US ETP market. They called for an immediate return to this governance standard, which they claim would foster financial innovation, creativity, and competition.
The Gloomy Outlook: SEC's Move Said to Stifle Innovation and Favor Big PlayersThe abandonment of the 'first-to-file' principle impacts small and newer ETF issuers negatively. The simultaneous approval approach undermines the incentive for pioneering product development by rewarding replication over originality. This shift in strategy potentially compromises the growth of the $15.4 trillion ETP industry, as newer, innovative companies like Wisdomtree, who have become industry leaders, may struggle to competitively position themselves.
Moreover, the new approach disadvantages smaller ETF firms. Early filers lose their first-mover advantage when larger firms are approved simultaneously, leading to market concentration, where big players dominate. The waning of fairness and the imbalance in the competitive landscape hampers the innovation that fuels the ETF market's growth.
Investor Choice and Market Efficiency at StakeThe shift from the 'first-to-file' principle threatens investor choice and market efficiency. The SEC's decision not to reward early filers undercuts the entrepreneurial spirit that drives the ETF market's growth, potentially leading to a stagnant market with limited choices for investors.
The 'first-to-file' principle serves as a crucial priority for asset managers striving to maintain a corner of the $15.4 trillion ETP market. The SEC is urged to reconsider its stance on the issue to ensure the ongoing growth and competitiveness of the ETF market.
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- The abandonment of the 'first-to-file' principle, as seen in the case of Bitcoin and Ethereum spot ETFs, raises concerns about technology-driven innovations in the finance sector, as smaller ETF issuers may struggle to maintain their edge against larger competitors.
- The shift from the 'first-to-file' principle could impact investor choice and market efficiency in the blockchain-based ETF market, as the SEC's decision not to reward early filers might lead to a diminished number of competitive options for investors, stifling further growth and development in this technology-driven sector.
