sec pseudo-outsource determines decision to CFTC to CFTC via futures rules

The SEC has effectively transferred its Crypto ETF approval body to CFTC by establishing futures contracts as the main qualification criteria for products traded on digital asset exchanges. Bloomberg analyst James Seyfert described the arrangement as a “pseudo-outsourcing” decision-making power to derivative regulators.

Under the proposed listing standards, cryptocurrencies merely indicate six months of futures trading in Coinbase derivative exchanges to qualify for ETF inclusion. This framework removes the requirements of traditional investment products and allows CFTC to control which assets have access to the ETF structure.

Traditional ETF standards abandoned for cryptographic products

The proposal for the new rules does not include market capitalization requirements, underlying market liquidity thresholds, or the minimum minimum amount that normally manages the ETF list. Seyffart emphasized that the framework focuses solely on the existence of futures markets, rather than on a comprehensive asset valuation.

This simplified approach contrasts with the stock ETF standard, which considers multiple market metrics before approval. The lack of traditional safeguards raises questions about investor protection and market stability as crypto ETFs grow.

The role of CFTC as the primary gatekeeper means that product designation and derivative exchange approvals effectively determine the eligibility of Sec ETFs. This indirect control mechanism shifts regulatory authorities between agencies without an explicit coordination framework.

Coinbase derivatives retain their exclusive position

Currently, only Coinbase Derivatives maintains membership in Information Sharing Groups (ISGs) from a purely cryptocurrency perspective. This exclusive position allows effective exchange control over whether a digital asset can develop the futures history required to approve an ETF.

Related: US SEC approves two major upgrades of Crypto ETF.

The exclusive structure creates potential bottlenecks where a single exchange decision affects the entire ETF approval process. Other crypto exchanges must participate in surveillance sharing agreements to expand the universe of eligible assets.

Seyffart said that this limit could last until Spot Crypto Exchange acquires ISG membership, but there is no timeline for such an extension. The current framework concentrates key market forces within Coinbase’s derivatives platform.

The SEC’s ETF decision delegation represents an unusual regulatory structure in which one institutional standard determines another’s approval. This indirect monitoring mechanism differs from traditional regulatory adjustment methods.

This arrangement may indicate an SEC reluctant to develop crypto-specific expertise while maintaining ETF monitoring responsibility. By relying on CFTC decisions, the SEC avoids direct digital asset valuations while maintaining investment product authorities.