On 29 July 2025, the US Securities and Exchange Commission (SEC) issued an order approving proposed rule changes to permit various exchange-traded products (ETPs) to engage in creations and redemptions of their shares with authorized participants (APs) on an in-kind basis. The proposed rule changes were submitted by the Nasdaq Stock Market LLC, Cboe BZX Exchange, Inc. and NYSE Arca, Inc. (Exchanges) with respect to the ETPs seeking to engage in in-kind creations and redemptions.
In approving the proposed rule changes, the SEC determined that they would be consistent with federal securities laws, specifically with Section 6(b)(5) of the Securities Exchange Act of 1934, which requires that rules adopted under that statute be designed to, among other things, prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, and generally protect investors and the public interest.
This decision marks a shift in policy by the SEC from the initial approvals of spot bitcoin and spot ether ETPs, which were restricted to cash-based creations and redemptions. Under the rule changes, the ETPs will be able to transact with APs in cash and engage in creations or redemptions of their shares in an in-kind transaction of spot bitcoin or spot ether, as necessary or desired. Permitting in-kind creations and redemptions may enhance tax efficiencies and minimize transaction costs for the ETPs (and thus shareholders), as well as provide market participants with flexibility. Importantly, in applying for the rule changes, the Exchanges represented that all other representations relating to the ETPs contained in the initial approvals will remain unchanged and continue to constitute continuing listing standards. The SEC's approval of in-kind creations and redemptions allows the ETPs to operate more like traditional exchange traded products.
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