Novel ETF comment letters: market makers, trade groups and NYSE set out when creation and redemption can keep prices in line

The SEC’s Request for Comment on Novel ETFs is a request for comment, not a rule proposal. Dated 30 June and published in the Federal Register on 2 July, it seeks views on ETFs that invest in innovative asset classes or use novel investment strategies, and on ways to facilitate innovation while protecting investors. The 2019 ETF rule, rule 6c-11, “does not restrict which investment strategies or asset classes an ETF may pursue”, the release says, but it does include conditions “designed to support an efficient arbitrage mechanism”. Between the end of 2019 and the end of 2025, the release says, total ETF net assets under management grew “from over $4 trillion to over $12 trillion”.

Comments were due by 31 August; Optiver’s letter is dated 1 September and NYSE Group’s 3 September. Letters from two market makers, two trading associations and NYSE Group, which calls itself “the world’s largest ETF listing venue”, focus less on which assets are suitable and more on the mechanics that keep an ETF’s price close to its value.

Three conditions for arbitrage

Optiver sets out “three pre-conditions required for the ETF arbitrage mechanism to function effectively from the perspective of a liquidity provider”:

• the value of the fund’s portfolio “should be estimable in real time”;
• an offsetting position “must be available at a quantifiable cost”;
• the resulting trade “needs to be able to settle through creation or redemption at the NAV in a known time with correctly modeled risk”.

Where any of the three is missing, Optiver says, “quotes must widen or withdraw, and the arbitrage mechanism produces large and stable premiums or discounts”.

Its category-by-category analysis applies those tests. Where fund assets settle on a different cycle from the ETF shares, a market maker “would be required to carry basis risk during the gap”. Cash baskets add execution risk. For levered-long single-stock ETFs on hard-to-borrow names, Optiver says its internal analysis shows borrow costs “can move by orders of magnitude within a single session”. It also points to “the known timing of large flows for levered single-name ETFs that must rebalance daily near market close”. For some categories, including commodity-focused and private-asset funds, Optiver says the necessary hedges “require market connections that only some liquidity providers possess”. It notes that it does not trade private-asset or event-contract funds, so its comments on those reflect analysis rather than direct experience.

Access to creation and redemption

Jane Street, which describes itself as “a lead market maker for roughly 20 percent” of US-listed ETFs, makes access to the primary market its central point. “An ETF that suspends creations becomes, in effect, a closed-end fund, and its price can decouple from the value of its holdings,” it says.

It repeats its view that ETFs should launch with at least two authorised participants (APs), which “would help ensure that all liquidity providers can create and redeem freely”. It adds that “the vast majority of ETFs contract with multiple APs, and AP availability is generally not an issue”.

The firm credits rule 6c-11’s flexibility on custom baskets and creation-unit size, and the SEC’s decision not to require holdings to be published before orders are accepted, which it says would have constrained “T-1” orders. It says market makers’ resulting savings reached investors as “tighter ETF bid-ask spreads”. It asks that creation or redemption suspensions be disclosed market-wide, and that listing exchanges halt trading promptly when a fund’s value is negative. Even so, it says, “initially imperfect arbitrage conditions in a new asset class may not, by themselves, be a reason to keep that asset class out of the ETF wrapper”.

PTG, which describes itself as a trade association of principal trading firms, makes a similar case. It says the primary market mechanism is “most valuable when the secondary market is under strain”. It also backs “flexibility in how baskets are constructed and delivered”, including cash, in-kind and custom baskets.

Clearing and listing

The Security Traders Association looks further down the chain. For certain novel ETFs, it asks the SEC to consider requiring “an assessment of the fund’s expected NSCC/DTCC margin and Clearing Fund impact before the fund is permitted to launch”.

NYSE Group says more than 2,700 ETFs, with about $11.6 trillion in aggregate market value, are listed on its exchanges. Its complaint is about process. When it seeks guidance on a novel listing, it says, “Commission staff have requested that the Exchange delay listing”, with “no specified timeline for when feedback will be received”. In the meantime, “there is nothing to prevent another listing exchange from moving ahead”. NYSE asks for a transparent pre-listing feedback process “that must be honored by all exchanges”, which it says would “eliminate regulatory arbitrage”.

Crypto assets are one of the categories the release lists, and Optiver’s letter refers to the SEC’s July 2025 in-kind order for crypto exchange-traded products that are not investment companies.

Why it matters for desks

• Testable conditions. Optiver’s three pre-conditions give a checklist for any new ETF: real-time valuation, a costed hedge and a known settlement path for creation or redemption.
• AP count at launch. Jane Street’s two-AP proposal would turn what it says is already common practice into a launch requirement.
• Suspensions and halts. Market-wide disclosure of suspended creations, and prompt exchange halts when a fund’s value is negative, address the case where an ETF in effect stops working as one.
• Clearing costs up front. STA’s proposal would move NSCC margin and Clearing Fund impact into the pre-launch review for some products.

Added 1 Nov 2026 to the ETFs section; dated to the event, not published at the time.

Sources

• SEC Release 33-11426, Request for Comment on Novel ETFs, 30 Jun 2026
• Jane Street comment letter, 31 Aug 2026
• Optiver comment letter, 1 Sep 2026
• PTG comment letter, 31 Aug 2026
• Security Traders Association comment letter, 31 Aug 2026
• NYSE Group comment letter, 3 Sep 2026