As ETF strategies continue to expand into new asset classes and structures, the SEC has been taking a closer look at how some of these products fit within existing regulations. Prediction market ETFs have drawn much of the attention, but single-stock ETFs, crypto ETFs, private company exposure, and higher levels of leverage are also part of the broader discussion around “novel ETFs.” As the comment period for novel ETFs has now ended, this research note reviews some of the relevant ETFs (and potential ETFs) in this category.Key Takeaways:
Novel ETFs are testing how far the ETF wrapper can expand across leveraged, private market, crypto, and event contracts.
Voluntary delays for 4x, 5x, and prediction-market ETFs suggest the regulatory environment is cautious around the most complex structures.
The SEC’s review could reshape how novel ETFs launch, which strategies qualify, and what investor protections accompany them.
What Are Novel ETFs?Earlier this summer, the SEC requested comments on “Novel ETFs,” broadly referring to funds offering exposure to innovative asset classes or novel investment strategies. These specifically included: crypto assets, commodity-focused instruments, single-stock strategies, heightened leverage, blockchain-enabled opportunities, private assets, and event contracts.
For investors, these newer types of ETFs could provide more accessible and liquid ways to gain exposure to strategies that were previously difficult to reach, while for issuers they represent an important area of product innovation and differentiation.
The formal comment period ended recently on August 31. During this time, issuers have voluntarily delayed effectiveness of filings under rule 485, while some have continued to file new ones. At its core, the Commission is evaluating whether the Investment Company Act of 1940 — and specifically Rule 6c-11 (which permits certain ETFs to operate without obtaining an exemptive order) — remain adequate for products holding non-traditional assets.
Among the questions are whether the current 60 and 75 day automatic effectiveness periods provide enough time for review, whether the SEC should be able to delay effectiveness, and whether early engagement could help sponsors and regulators address potential issues earlier.Spot Crypto ETP Launches Thrive Under a Different FrameworkThe SEC has already streamlined the listing process for qualifying spot crypto ETPs through 2025’s Generic Listing Standards, which allow certain products to list without an individual Section 19(b) rule change. These products, however, are technically classified as commodity-based ETPs registered under the 1933 Act. The novel ETF review is focused more broadly on how crypto and other unconventional exposures fit within the registered investment company framework (1940 Act), particularly when derivatives or leverage are involved.
Spot crypto ETPs continue to successfully launch this year as commodity trusts. Grayscale’s Zcash ETF (ZCSH)) launched on September 9. Both are first of their kind, which shows how much the breadth of crypto products has widened this year. With the launch of these two products, all of the current top ten market cap cryptocurrencies (as of September 15, excluding stablecoins) now have a spot ETP.
ZCSH has been particularly interesting since the underlying asset for Zcash has been up approximately 120% year-to-date partly due to its focus on privacy relative to Bitcoin. Since its late August launch, it has seen around $185 million in net inflows.First Mover Advantage Is Significant for Pre-IPO ExposureFilings for pre-IPO private company-related ETFs present a different question. T-REX, Direxion, and other issuers have proposed leveraged products tied to companies including OpenAI, Anthropic, and Anduril, which have not yet gone public. Several of those funds are also undergoing repeated effectiveness delays.
The SEC’s request specifically asks how the registration process should work when the investment needed to implement an ETF’s strategy does not yet exist or is not yet available. While these funds could not launch until the underlying company begins trading, filing early gives issuers a chance to establish a first-mover advantage — similar to what happened with Space Exploration Technologies (SPCX) earlier this year, which now has at least 14 leveraged ETFs.
Large pre-IPO names often have significant interest. Anthropic, for instance, recently reported that its annualized revenue run rate surpassed $65 billion by the end of July, up from $47 billion in May, and roughly $9 billion at the end of 2025. Investors can access Anthropic and other private companies through ETFs, although typically in small amounts (more in this note on ETFs that hold Anthropic).The Leveraged ETF Universe Has Grown SignificantlyLeveraged products are particularly relevant to the novel ETF discussion because their underlying stocks and indexes are already established and liquid, unlike a pre-IPO private company ETF. Historically, most ETFs have been a maximum of 2x leveraged with exemptions for certain 3x leveraged funds on diversified indexes.
Leverage Shares’ proposed suite of 21 5x daily ETFs has also remained in an uncertain regulatory zone. Originally filed in February, the funds have been repeatedly delayed until September 26, providing another example of the heightened-leverage products caught up as the SEC considers the boundaries of novel ETFs. Filings for 4X ETFs from Leverage Shares and other issuers including T-REX and GraniteShares, although all have been delayed until at least September.
Interestingly, both 3x leveraged ETFs and single-stock leveraged ETFs have been popular recently, which shows there is demand beyond the traditional 2x diversified products. Year-to-date, the ETF with the highest net inflows at $3.9 billion is the Direxion Daily Semiconductor Bear 3X ETF (SOXS B), which is an ETF that tracks 3x the daily results of the NYSE Semiconductor Index. The next largest YTD inflows came from the Tradr 2X SNDK Long Daily ETF (SNXX), which tracks 2X the daily returns of SanDisk Corporation (SNDK). Out of the past week, 5 out of 10 of the top inflows are in 3x ETFs, while 1 out of 10 are single stocks ( Tesla (TSLA)).Event Contracts, Prediction Markets & Sports Are Pushing Boundaries for ETFsFilings for event contract ETFs have received some of the most attention as prediction markets like Kalshi and Polymarket gain popularity. GraniteShares, Bitwise’s PredictionShares, and Roundhill each filed funds using event contracts tied to election bets — which political party controls the presidency, House, or Senate, with a binary outcome. This creates the potential for the ETF to lose most or all of its value depending on the outcome. Several of the funds have been repeatedly delayed, including Roundhill’s six products, which are currently pushed to September 26.
The category has continued to evolve despite those delays. On September 8, Tidal filed the Prediction Market Fed Funds Consensus ETF and Prediction Market Fed Funds Surprise ETF, which would use event contracts tied to Federal Reserve interest-rate decisions.
Sports-related ETF filings have added a similar flavor to the prediction market story, but they are structurally different from traditional prediction markets. Volatility Shares and LeagueShares have filed ETFs tied to individual NHL teams that would obtain exposure through futures based on continuously calculated CME team-performance indexes rather than binary contracts on whether a team wins a particular game or championship.
In fact, the Volatility Shares prospectus explicitly states that its proposed hockey funds do not invest directly in prediction markets or event contracts. The underlying indexes instead use dozens of official team-performance statistics to create a continuously changing value, illustrating how sports-related exposure can look similar thematically while being very different under the hood.
Meanwhile, investors can already access the prediction market theme indirectly. The Tema Trading & Prediction Markets ETF (DICE) launched September 9 and invests in companies involved in prediction markets and trading infrastructure, including private exposure to Kalshi and Polymarket through SPVs (together at the maximum limit of 15% private asset weight) alongside public companies such as Robinhood Markets (HOOD) and Coinbase Global (COIN). DICE invests in equities and not in event contracts, which is an important difference.Many Public Comments Have Been Supportive of ETF Innovation Within Certain ConditionsMany industry comments received on novel ETFs supported continued ETF innovation, but differed on how much the existing framework should change. Teucrium’s comment favored keeping Rule 6c-11 neutral and opposed longer effectiveness periods. Grayscale also resisted broad asset restrictions but argued that funds primarily holding non-securities should not automatically qualify as investment companies.
Other commenters focused more on market structure and investor protection. Jane Street argued that ETF product innovation can still work within the ETF arbitrage mechanism, while Schwab highlighted the growing accessibility of sophisticated exposures through ETFs. Cboe called for more certainty in the registration process.
Better Markets had a more restrictive perspective, particularly toward event contract and sports-related products. It questioned whether funds built primarily on non-securities belong within the investment company framework. Overall, the debate centers on how far the ETF wrapper should extend and whether novel products need additional review or safeguards before reaching investors.Bottom Line:The August 31 deadline does not create an immediate decision because the SEC issued a request for comment rather than a proposed rule. In the meantime, the repeated 485 filings may offer a clear signal of where regulatory questions remain unresolved. Event contract ETFs, pre-IPO private company products, and 4x and 5x leveraged funds continue to move their effective dates forward. Meanwhile, other new products that fall outside of the definition — including spot crypto ETPs and the new DICE ETF — have continued to reach the market.
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