The SEC has issued a statement as part of its effort to provide greater clarity on the application of the federal securities laws to crypto assets. It says that its Division of Corporation Finance expects certain disclosure requirements to be followed regarding the offering and registrations of securities by issuers of crypto asset exchange-traded products (ETPs).

The statement reflects the agency’s observations regarding disclosure practices in our reviews of crypto asset ETP filings and addresses its views about certain specific questions that market participants have presented to the staff. It targets in particular certain disclosure requirements set forth in Regulation S-K and Regulation S-X as they apply to Securities Act registration forms.

“While disclosures should be based on an issuer’s specific facts and circumstances, we believe that issuers may benefit from the identification of common issues we have observed during our reviews,” the statement notes.

Background on ETPs

Crypto asset ETPs are investment products that are listed and traded on national securities exchanges. The US approved its first bitcoin futures ETPs in 2021, and in 2024, the SEC approved the first spot bitcoin ETPs and later, spot ether ETPs. The market for these products has grown considerably, along with variety and both retail and institutional investor interest.

These ETPs are typically structured as trusts that hold assets which consist of spot crypto assets or derivative instruments that reference crypto assets. These trusts are issuers of securities that must register their offerings and classes of securities under the Securities Act of 1933 and Securities Exchange Act of 1934, respectively. Issuers of crypto asset ETPs are also subject to the anti-fraud provisions of the federal securities laws

Disclosure requirements

Besides a detailed cover page overview of the trust and the issuer’s policies regarding the management of the underlying assets, SEC rules also require a discussion of the material factors that make an investment in the issuer and product speculative or risky. 

The content and scope of an issuer’s risk disclosure will depend on the nature of the security, the issuer’s business, the underlying crypto asset(s), the tracking index or benchmark, and, if material, may include factors such as the characteristics of the security, limited rights of holders, insurance coverage, valuation and liquidity risks, technological risks, cybersecurity risks, and legal, regulatory, and tax risks.

The following are examples of risks that have been disclosed (among others):

• Risks related to the underlying crypto asset(s) and crypto asset markets that pose a risk of investor losses, including price volatility, theft of private keys and other hacking incidents, and the risk of price volatility from other parts of the crypto asset markets;
• Risks of fraud, manipulation, front-running, wash-trading, security failures or operational problems on crypto asset trading platforms;
• Risks of attacks on the associated network(s) by malicious actors; and
• Risks of concentration of ownership in the underlying crypto asset(s).

SEC rules require disclosure of information material to an understanding of the issuer’s business, which may include the extent to which the issuer’s business is materially reliant on third parties. Issuers generally rely on the services of a sponsor and several third-party service providers, including one or more crypto asset custodians.

SEC rules require disclosure of the plan of distribution of securities offered and sold in a registered offering. And they require disclosure of information relating to the identity and experience of those entrusted with the management of the issuer, including executive officers, directors, and certain significant employees who make (or are expected to make) a significant contribution to the issuer’s business.

The SEC has observed that some issuers are organized as statutory trusts or limited partnerships that are registering the offer and sale of beneficial units or limited partnership interests in multiple series. In these instances, the SEC says, and for purposes of SEC reporting, the staff has taken the position that the trust or partnership should be treated as the sole registrant, not the individual series.

However, the staff has also decided that, in addition to providing financial statements of the trust or partnership, issuers should provide separate financial statements of each individual series. Issuers have separately provided, prepared, or evaluated, as applicable, the following for the sole registrant and for each series:

• separate financial statements and audit reports;
• separate interim financial statements; and
• separate assessments of materiality for Regulation S-K and Regulation S-X purposes.