SEC authorizes in-kind creations and redemptions for crypto ETPs while exchanges advance generic listing standards

For years, crypto ETPs have operated at a structural disadvantage. Unlike gold or commodity funds that freely exchange physical assets for shares, crypto products were limited to cash-only redemptions—a restriction that created operational inefficiencies and increased costs for investors. The SEC’s change in stance, under the leadership of Chair Atkins and described as “a new day at the SEC,” formally recognizes that digital assets can be regulated within the established market infrastructure.

I. The 19b-4 Process

Section 19(b) of the Securities Exchange Act of 1934, as amended (Exchange Act), requires national securities exchanges to obtain SEC approval for the listing and trading of all “new derivative securities products,” which includes ETPs and “exchange-traded funds” (ETFs) registered under the Investment Company Act of 1940 (1940 Act).¹ This approval takes the form of a “rule change” from the SEC that is proposed pursuant to Rule 19b-4 under the Exchange Act prior to listing. This process typically requires significant time and resources and introduces uncertainty as to whether a particular product will be approved at all. It requires extensive discussion among the issuer, the SEC staff and exchanges that can take six to twelve months to resolve.

Rule 19b-4(e) provides an exception for the listing of a product if the SEC has approved the exchange’s “trading rules, procedures and listing standards for the product class that would include the new . . . product and the [exchange] has a surveillance program for the product class.” Pursuant to this Rule, and in connection with the approval of Rule 6c-11 under the 1940 Act (ETF Rule), the SEC approved one set of generic listing standards for any ETF that operates in reliance on the ETF Rule.² The relevant exchange would not have to obtain a rule change with respect to any ETF that satisfied the generic requirements.

II. In-Kind Creation and Redemption Mechanisms

The SEC’s July approval order signaled a significant policy shift, approving orders that permit in-kind creations and redemptions for crypto asset ETPs.³ This marks a departure from the SEC’s prior approach, which limited spot bitcoin and ether ETPs to cash-only creations and redemptions. Under the new orders, bitcoin and ether ETPs can operate consistent with other commodity-based ETPs because authorized participants (APs) can create and redeem shares using the underlying crypto assets rather than cash.

The economic impacts of this new rule are likely to be meaningful. Under the previous cash-only model, fund sponsors were required to sell crypto holdings on the open market to meet redemptions, incurring trading costs and potentially triggering taxable events. By contrast, in-kind transfers allow authorized participants to exchange the underlying digital assets directly with the trust, which should make these products less costly and more efficient.⁴ Direct in-kind transfers reduce market frictions and better align crypto ETPs with established commodity ETP practices. 

Commissioner Mark Uyeda, who had vocally opposed the cash-only requirement, noted that in-kind flexibility allows crypto ETPs to function “more cheaply, more transparently, and with better alignment” to traditional commodity funds.⁵ The Trading and Markets Division Director echoed this view, emphasizing the “flexibility and cost savings” that will reshape market dynamics.

III. Generic Listing Standards

The exchanges where these ETPs list have not sat idly by either. Cboe, Nasdaq, and NYSE Arca have each proposed rule changes that would amend the exchanges’ listing rules to establish generic listing standards for “Commodity-Based Trust Shares,” which is the class of product to which most spot crypto ETPs and other commodity-based ETPs belong.⁶ The proposed rule changes would serve to amend, rather than replace, existing rules regarding the listing of Commodity-Based Trust Shares. Therefore, exchanges will be able to continue to propose bespoke rule changes for products that do not satisfy the conditions of the generic listing standards.

The proposed rule changes would modify the definition of Commodity-Based Trust Shares to include products beyond the physical commodity ETPs that have traditionally been listed as Commodity-Based Trust Shares. The proposed generic listing standards would include “Commodity Pools,” as defined in the Commodity Exchange Act, that invest in commodity futures, commodity options, commodity swaps (commodity-based assets), securities, cash, and cash equivalents. The issuer of a Commodity-Based Trust Share must invest in commodities of commodity-based assets to reflect the performance of one or more reference assets or an index of reference assets, less expenses and other liabilities. Therefore, leveraged or inverse ETPs could not rely on the proposed generic listing standards and will have to continue to seek specific rule changes. In addition, the definition specifically excludes 1940 Act registered ETFs.

The proposed rule changes also include initial and continued eligibility criteria for the holdings of products that seek to list pursuant to the generic listing standards. Under the proposed standards, a commodity held by an ETP or a commodity that underlies commodity-based assets held by the ETP would have to satisfy the following criteria:

• the commodity must trade on a market that is an Intermarket Surveillance Group (ISG) member;
• the commodity must underlie a futures contract that has been made available to trade on a CFTC regulated designated contract market for at least six months, provided that the listing exchange has a comprehensive surveillance sharing agreement, whether directly or through common membership in ISG, with such designated contract market; or
• an exchange-traded fund designed to provide economic exposure of no less than 40% of its net asset value to the commodity must list and trade on a national securities exchange.

In addition, the proposed rule changes would impose the following requirements that are not present in current product-specific rule changes:

• requirements for daily website disclosures, including holdings information, information about the ETP’s net asset value, market price and premium/discount data, bid-ask spread information, liquidity risk policies and procedures, and trading volume data, which are similar to the website disclosures required of ETFs under the ETF Rule and resemble certain requirements under the 1940 Act. Issuers will need to work with their service providers to ensure that such disclosures are current and complete.
• written liquidity risk policies and procedures, if less than 85% of the ETP’s assets are readily available for redemption, that address the risk that it could not meet requests to redeem shares issued by the issuer without significant dilution of the remaining shareholders’ interest in the issuer. This condition apparently applies to ETPs that are engaged in staking their crypto assets.
• “firewall” requirements governing information sharing between an ETP and (1) broker dealers that maintain an index that the ETP tracks, or (2) an affiliate of the ETP that has the ability to influence the price or supply of a commodity, or a commodity underlying a commodity-based asset.

Conclusion

We note that the generic listing standards are so far only proposals and we expect ongoing negotiations between the exchange, SEC and issuers over the final form of the generic listing standards. Issuers are likely to seek to expand the range of ETP types that can be covered by the generic listing standards. For those products covered, the generic listing standards will reduce time-to-market, provide predictability with respect to types of products that exchanges can list, and provide necessary investor protections.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 See Securities Exchange Act of 1934 § 19(b)(1), 15 U.S.C. § 78s(b)(1); 17 C.F.R. § 240.19b-4.
2 Exchange-Traded Funds, Securities Act Release No. 10695, Investment Company Act Release No. 33646, 84 Fed. Reg. 57,162 (Oct. 24, 2019) (codified at 17 C.F.R. § 270.6c-11) (prior to the adoption of the ETF Rule, the SEC approved in 1998 “generic listing standards” for the major United States exchanges for index-based ETFs, and subsequently approved generic listing standards for actively managed ETFs in 2016).
3 Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to Amend Certain Bitcoin and Ether-Based Commodity-Based Trust Shares to Permit In-Kind Creations and Redemptions, Exchange Act Release No. 103571 (July 29, 2025).
4 See SEC Press Release No. 2025-101; Lucy Brewster, SEC Prefers Cash Redemption Models for Spot Bitcoin, ETF.com (Dec. 20, 2023), https://www.etf.com/sections/news/sec-prefers-cash-redemption-models-spot-bitcoin.
5 Statement of Commissioner Mark T. Uyeda, In-Kind Creations and Redemptions for Crypto ETPs (July 2025), https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-crypto-exchange-traded-products-072925.
6 See Cboe BZX: Cboe BZX Exch., Inc., Notice of Filing of Proposed Rule Change to Amend Rule 14.11(e)(4) (Commodity-Based Trust Shares), SR-CboeBZX-2025-103 (filed 2025), https://cdn.cboe.com/resources/regulation/rule_filings/pending/2025/SR-CboeBZX-2025-103.pdf; Nasdaq: Self-Regulatory Orgs.; The Nasdaq Stock Mkt. LLC; Notice of Filing of Proposed Rule Change to Amend Rule 5711(d), 90 Fed. Reg. 36461 (Aug. 4, 2025) (FR Doc. No. 2025-14660), https://www.federalregister.gov/documents/2025/08/04/2025-14660/self-regulatory-organizations-the-nasdaq-stock-market-llc-notice-of-filing-of-proposed-rule-change; NYSE Arca: Self-Regulatory Orgs.; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change to Adopt Rule 8.201-E (Generic), 90 Fed. Reg. 36485 (Aug. 4, 2025) (FR Doc. No. 2025-14672), https://www.govinfo.gov/content/pkg/FR-2025-08-04/pdf/2025-14672.pdf.}