Quantum Updates 47 | May 2025

US SEC Extends Deadline on Bitwise 10 Crypto Index Fund: Compliance Stakes for Framework for Commodity- and Digital Asset-Based Investment Interests till 31 July 2025

On 28 May 2025, the United States Securities and Exchange Commission (US SEC) published a Notice of Designation of Longer Period to extend its review timeline on a proposed rule change by NYSE Arca, Inc. seeking approval to list and trade shares of the Bitwise 10 Crypto Index Fund under proposed NYSE Arca Rule 8.800-E. The new deadline for a final decision is now set for 31 July 2025. The proposed index fund represents a regulatory milestone, aiming to introduce a diversified, crypto-based exchange-traded product (ETP) within a compliant commodity and digital asset investment framework. The extension signals that the US SEC requires additional time to assess whether the proposed structure aligns with existing federal securities laws and the Commission’s evolving standards for crypto-linked investment vehicles.

• On 14 November 2024, NYSE Arca filed the proposal to list the Bitwise 10 Crypto Index Fund (SR-NYSEARCA-2024-98).
• On 03 December 2024, the proposal was published in the Federal Register for public comment (Release No. 101775).
• On 14 January 2025, the US SEC extended the decision deadline to 03 March 2025 (Release No. 102186).
• On 03 March 2025, proceedings were formally initiated under Section 19(b)(2)(B) of the Securities Exchange Act.
• On 07 March 2025, a further notice of proceedings was issued (Release No. 102514).
• On 28 May 2025, the US SEC extended the final deadline to 31 July 2025 (Release No. 34-103140).
• The fund aims to track the ten largest cryptoassets by market capitalisation, providing a diversified, index-based crypto investment product.
• The listing application is evaluated under Section 19(b)(2) of the US Securities Exchange Act of 1934 and Rule 19b-4, falling under NYSE Arca’s proposed Rule 8.800-E for commodity- and digital asset-based investment interests.
• Key regulatory issues being assessed include custody standards, market surveillance measures, price verification mechanisms, risk disclosures, and the passive nature of the fund structure.
• The SEC’s final order will influence the future structuring of multi-asset crypto ETFs and their compliance with federal disclosure, governance, and market protection requirements.
• The product would open new avenues for regulated crypto exposure across institutional portfolios, mutual funds, and retail retirement plans, should approval be granted.
• The US SEC notice states: “The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein.”
• The decision occurs amidst an evolving Crypto regulatory dialogue in US, with the US SEC’s Crypto Task Force scheduling multiple public roundtables through June 2025 to examine DeFi, staking, and tokenisation.

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US SEC publishes Order Instituting Proceedings on Grayscale Ethereum Trusts’ Staking Proposal: Regulatory stance on ETF Integration of PoS Mechanics

On 28 May 2025, the United States Securities and Exchange Commission (US SEC) issued an order instituting proceedings to assess whether to approve or disapprove a proposed rule change to amend the listing terms of the Grayscale Ethereum Trust ETF and the Grayscale Ethereum Mini Trust ETF. The amendment seeks to enable these trusts to stake Ether held in their custody on the Ethereum network, integrating Proof-of-Stake (PoS) protocol activities within regulated exchange-traded fund (ETF) frameworks.

• The initial rule change was filed on 14 February 2025 by NYSE Arca under SR-NYSEARCA-2025-13 to amend NYSE Arca Rule 8.201-E governing commodity-based trust shares.
• On 3 March 2025, the proposal was published in the Federal Register (Release No. 102485, 90 FR 11081) inviting public comments.
• On 14 April 2025, the US SEC extended the initial decision deadline to 1 June 2025 (Release No. 102855).
• On 28 May 2025, the US SEC instituted formal proceedings under Section 19(b)(2)(B) of the Securities Exchange Act of 1934 (Release No. 34-103137).
• The amendment would permit the Trusts to participate in Ethereum staking while retaining their existing ETF structure, raising foundational questions about passive versus active fund classification.
• The US SEC is evaluating whether staking, a validator-based network activity, aligns with investor protection and market integrity standards under Section 6(b)(5) of the US Exchange Act.
• Specific issues include treatment of staking rewards, exposure to slashing and network penalties, reliance on third-party validators, and disclosure adequacy in fund documentation.
• Concerns also arise around tax treatment, accounting practices, and operational consistency with ETF listing standards.
• Disapproval would reaffirm the regulatory separation between passive crypto exposure and active protocol participation under US securities law.
• Comments on the proposed rule change must be submitted within 21 days of publication in the Federal Register, with rebuttals due within 35 days. No oral hearing is scheduled but may be requested under Rule 19b-4.

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US SEC to Host Public Roundtable on DeFi Regulation and Innovation Titled: “DeFi and the American Spirit” on 9 June 2025

On 28 May 2025, the United States Securities and Exchange Commission (US SEC), through its Crypto Task Force, announced the agenda and panelist list for its upcoming public roundtable titled “DeFi and the American Spirit” scheduled to take place on 9 June 2025 from 1:00 p.m. to 5:00 p.m. Eastern Time at the US SEC Headquarters in Washington, D.C. The event will be webcast live and aims to advance public dialogue on the regulatory challenges and opportunities posed by Decentralised Finance (DeFi).

• The roundtable will be held at the US SEC Headquarters, 100 F Street, N.E., Washington, D.C., and will be streamed live via sec.gov.
• The event forms part of the US SEC’s broader initiative to explore the legal and policy implications of DeFi in US capital markets.
• Opening remarks will be delivered by Richard B. Gabbert (Chief of Staff, US Crypto Task Force), US SEC Chairman Paul S. Atkins, and Commissioners Caroline A. Crenshaw, Mark T. Uyeda, and Hester M. Peirce.
• From 1:30 p.m. to 3:00 p.m., a moderated session will be led by Troy Paredes (Paredes Strategies LLC), covering DeFi’s technological dynamics and associated regulatory considerations.
• Confirmed speakers include Jill Gunter (Espresso Systems), Michael Jordan (DBA), Omid Malekan (Columbia Business School), Michael Mosier (Arktouros), Rebecca Rettig (Jito Labs), Gabe Shapiro (MetaLeX), Peter Van Valkenburgh (Coin Center), Erik Voorhees (Venice AI), and Kevin Werbach (Wharton School).
• A town hall session from 3:30 p.m. to 4:55 p.m. ET will allow public interaction with the panel, with questions accepted in person and via email at crypto@sec.gov.
• Commissioner Hester M. Peirce will deliver the closing remarks from 4:55 p.m. to 5:00 p.m. ET.
• In-person attendance is subject to advance registration, while online viewing is open to the public without registration requirements.

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US CFTC Issues Advisory Urging Stronger Market Volatility Controls by Exchanges and Clearing Houses

On 22 May 2025, the United States Commodity Futures Trading Commission (US CFTC) issued Staff Advisory No. 25-15, jointly authored by the Division of Market Oversight (DMO) and the Division of Clearing and Risk (DCR), reiterating the obligations of Designated Contract Markets (DCMs) and Derivatives Clearing Organizations (DCOs) under the United states Commodity Exchange Act and associated US CFTC regulations concerning volatility risk controls. This advisory comes during increased market volatility and establishes the regulatory stance on market stability through preventative mechanisms tailored to systemic risk scenarios.

• The advisory requires DCMs to comply with Core Principle 4 of the United states Commodity Exchange Act, mandating effective safeguards against manipulation, price distortion, and disruptive market activity.
• Regulation 38.255 obliges DCMs to implement pre-trade risk controls, such as circuit breakers, trading pauses, and price bands, customised to the nature and volatility of their markets.
• The US CFTC endorsed best practices set out by the United States Futures Industry Association (FIA), urging that controls must balance orderly trading with the preservation of price discovery mechanisms.
• DCMs are advised to adopt tools like dynamic circuit breakers, price validation logic (e.g. fat finger checks), and daily price limits, sensitive to trading hours, asset characteristics, and geopolitical risks.
• DCOs are reminded to assess the interaction of volatility controls with their broader risk management processes, especially around end-of-day settlements.
• Under Regulation 39.13, DCOs may override standard pricing models and adopt alternative settlement prices when warranted by extreme volatility, provided they do so with transparency and advance communication to members.
• The advisory reflects recommendations from the Global Markets Advisory Committee (GMAC) and supports alignment with international regulatory practices.
• Historical market events, including the 2008 cotton futures episode, are cited as justification for more flexible pricing mechanisms under high-stress market conditions.
• While the advisory is non-binding, it serves as a clear articulation of the US CFTC’s expectations and evolving policy approach to market risk oversight in volatile trading environments.

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US CFTC Confirms Cross-Border Regulatory Interpretations for Foreign Proprietary Trading Firm

On 21 May 2025, the United States Commodity Futures Trading Commission (US CFTC), acting through its Market Participants Division and Division of Market Oversight, issued an interpretative letter offering regulatory clarity on the cross-border treatment of a proprietary trading firm organised outside the United States. This letter responds to a formal inquiry and affirms the firm’s regulatory status under US CFTC oversight, thereby reinforcing jurisdictional clarity for international market participants engaged in US-regulated derivatives activities.

• The interpretative letter confirms that the foreign trading firm is not deemed a “person located in the United States” under US CFTC regulation 30.1(c), which defines a “foreign futures or foreign options customer”.
• The firm is similarly not classified as a “participant located in the United States” as defined under regulation 48.2(c).
• The US CFTC determined that the firm qualifies as a “foreign located person” under regulation 3.10(c)(1)(ii), exempting it from certain registration obligations applicable to US-based entities.
• It is also not a “U.S. person” under US CFTC regulation 23.23(a), consistent with the interpretative guidance issued in 2013 i.e. Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations concerning compliance with US swap regulations.
• This clarification provides legal certainty for proprietary trading firms operating outside US jurisdiction and aligns with the CFTC’s objective to distinguish between domestic and foreign entities in the global derivatives market.

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US SEC and FINRA Withdraw 2019 Joint Statement on Broker-Dealer Custody of Digital Asset Securities, Signalling Policy Shift in Crypto Oversight

On 15 May 2025, the United States Securities and Exchange Commission (US SEC), Published a statement through its Division of Trading and Markets, jointly with the Office of General Counsel of the Financial Industry Regulatory Authority, Inc. (FINRA), and thereby formally withdrew the 2019 ‘Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities. The withdrawal was made effective immediately and published on the official US SEC website.

• The withdrawn document, issued on 8 July 2019, had offered guidance on how broker-dealers could comply with the US SEC’s customer protection rule when engaging in the custody of digital asset securities.
• The decision to rescind the Joint Statement reflects regulatory reassessment amid evolving market practices and may pave the way for new rulemaking or interpretive guidance better tailored to contemporary digital asset custody mechanisms.
• The US SEC has not yet announced replacement guidance but is expected to address this regulatory vacuum through updated rulemaking or initiatives spearheaded by its Crypto Task Force.
• Market participants, including digital asset custodians and broker-dealers, have been advised to refer to the US SEC Crypto Task Force’s portal or contact the Division of Trading and Markets (Michael Macchiaroli and Raymond Lombardo) for interim direction.
• FINRA stakeholders may direct queries to its US SEC Crypto Assets team or Associate General Counsel Tom Kimbrell, pending the issuance of formal updated custody guidance.

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