SEC Requests Public Comment on Some of Wall Street’s Wildest ETFs

Just because it can go in an ETF doesn’t mean it should.

The Securities and Exchange Commission is opening a public comment period to discuss “innovative” or “novel” exchange-traded funds after a whirlwind of product development in recent years, both here and abroad. In a statement Tuesday, the agency said the 60-day comment window will help foster innovation, but also protect investors and the markets, and the comments could eventually factor into future regulations. The sheer number and diversity of products entering the market has made it harder for advisors to determine which ETFs belong in client portfolios, while clients can also be confused by products that raise the prospect of outsized returns.

“The ETF industry is innovating at a pace that regulators are struggling to keep up with,” a spokesperson for the ETF Institute told ETF Upside. “The SEC recognizes that the current regulatory framework for bringing ETFs to market may need to evolve to better protect investors, issuers and the agency itself.” 

Growth and Innovation (and Risk) 

Much of the innovation is coming from active ETFs, which have exploded in popularity over the past few years: 

• Assets in active products reached nearly $400 billion by the end of 2025, according to FINTRX data.
• However, they accounted for roughly 80% of new launches. 

“The commission’s request for comment seeks input from the public on how the US ETF market can continue to grow and innovate while serving investors effectively, and I look forward to reviewing feedback,” SEC Chairman Paul S. Atkins said in the release. 

However, Bill Singer, a veteran Wall Street regulatory lawyer, is highly skeptical about Atkins’ message, suggesting the pace and scale of innovation in the ETF industry has driven some issuers to create “absurdly silly and questionable” products. He thinks the SEC’s comment request affords an opportunity for the regulator to wash its hands of core responsibilities and gives its leadership cover from Congressional scrutiny should leveraged products create systemic problems or even an eventual “meltdown.”  

“Cynically, I suspect that the SEC wants to foster the impression that it is laboring under the so-called ‘gatekeepers dilemma,’ needing to balance innovation with protection,” Singer said. “The reality is that Atkins is a very savvy industry veteran who likely already knows what he would like to promulgate.” 

Feeling Some Regret? The SEC’s comment request comes a few weeks after South Korea’s top financial regulator said that he has “regrets” about allowing leveraged single-stock funds to trade in the country, warning that the products can lead to  significant volatility. The official also cited concerns regarding leveraged funds that track high-flying AI stocks, particularly for non-professionals.

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