Rule 6c-11: The Regulatory Baseline for Tokenized ETF Structures
The SEC’s ETF Rule 6c-11, codified at 17 CFR 270.6c-11, eliminated the need for individual exemptive relief applications that had governed ETF launches since the first SPDR S&P 500 ETF in 1993. By September 2019, the Commission had processed over 300 exemptive applications — each consuming 12-18 months and averaging $500,000 in legal costs. Rule 6c-11 replaced this bottleneck with a standardized framework permitting any registered investment company to operate as an ETF, provided it meets specific conditions around transparency, basket construction, and website disclosure.
For tokenized fund structures, Rule 6c-11’s requirements create both opportunities and constraints. The rule’s transparency mandates — daily portfolio disclosure, real-time indicative NAV, and standardized basket policies — align naturally with blockchain’s inherent data availability. Yet the rule’s implicit assumptions about settlement cycles, authorized participant mechanics, and custodial arrangements were designed for a legacy infrastructure that tokenization seeks to replace.
Custom Basket Policy Requirements and On-Chain Implementation
Rule 6c-11 requires every ETF to adopt written policies and procedures governing the construction and acceptance of creation and redemption baskets. The custom basket provisions under Section (c)(3) permit ETFs to use baskets that differ from the fund’s pro rata portfolio composition, subject to board oversight and compliance monitoring.
In a tokenized context, custom basket policies could be encoded as smart contract parameters. The authorized participant function — currently managed through bilateral agreements and manual reconciliation — would be governed by on-chain logic that enforces basket composition rules, tracks deviations from stated policy, and generates immutable audit trails. The DTCC currently processes approximately 98% of all US ETF creation and redemption activity; tokenization would distribute this function across a decentralized or permissioned ledger.
The rule’s requirement that custom basket policies include “a description of the process for the identification and approval of the specific securities and financial instruments to be included in baskets” maps directly to smart contract parameterization. Each basket creation event would generate verifiable on-chain evidence of policy compliance, eliminating the retrospective compliance reviews that currently consume 15-20 hours per fund per quarter at major ETF sponsors.
Transparency Requirements and Blockchain Data Availability
Section (c)(1) of Rule 6c-11 mandates that ETFs disclose their full portfolio holdings daily on their websites before the opening of trading on the relevant exchange. This requirement — which ended the “semi-transparent” ETF debate for most structures — aligns with blockchain’s fundamental property of data transparency.
Tokenized ETFs operating on public or permissioned blockchains would exceed Rule 6c-11’s transparency floor by providing continuous, real-time portfolio visibility rather than once-daily snapshots. The question for regulators is whether this enhanced transparency creates new obligations or risks. The SEC’s Division of Investment Management has not yet issued formal guidance on whether continuous on-chain disclosure satisfies, exceeds, or potentially conflicts with the rule’s daily disclosure framework. However, the SEC granted WisdomTree exemptive relief on February 24, 2026, for 24/7 trading of its WTGXX tokenized mutual fund ($742.8 million AUM) — the first such authorization — suggesting the Commission is engaging constructively with blockchain-native fund structures that exceed Rule 6c-11’s transparency baseline.
The indicative NAV (iNAV) requirement under the rule — where ETFs must make available an intraday estimate of NAV per share — could be replaced entirely by on-chain NAV calculation that updates with every block confirmation. Current iNAV calculations, typically provided by the fund’s listing exchange at 15-second intervals, introduce latency and rely on vendor price feeds that carry their own accuracy risks.
Custody and Settlement Complications
Rule 6c-11 does not directly address custody requirements, which fall under Section 17(f) of the Investment Company Act and the SEC’s custody rules. However, the rule’s operational framework assumes standard T+1 settlement for US equities (since May 2024) and conventional custodial arrangements through qualified custodians.
Tokenized ETF settlement — whether atomic on delivery-versus-payment or through hybrid models — challenges these assumptions. The SEC’s 2023 safeguarding rule proposal (Release No. IA-6240) would require investment advisers to maintain client assets with qualified custodians, a requirement that extends to digital asset custodians only if they meet specific conditions. State-chartered trust companies like Anchorage Digital, BitGo, and Coinbase Custody have obtained qualified custodian status, but the regulatory pathway for purely on-chain custody remains contested.
The interaction between Rule 6c-11’s operational requirements and tokenized settlement infrastructure raises questions that the Commission has deferred but cannot indefinitely postpone. As Franklin Templeton’s BENJI fund and BlackRock’s BUIDL fund demonstrate the operational viability of on-chain fund shares, the gap between existing rules and emerging practice widens.
Board Oversight and Compliance Monitoring
Rule 6c-11 requires ETF boards of directors to approve custom basket policies and to oversee compliance with the rule’s operational requirements. In a tokenized environment, board oversight could be enhanced through automated compliance dashboards that draw on-chain data directly, eliminating the reporting lag that characterizes current board materials.
The compliance function — currently requiring dedicated CCOs to monitor basket activity, portfolio disclosure, and operational mechanics — could be partially automated through smart contract-based compliance modules. The MiCA fund tokenization provisions in Europe have begun addressing similar questions of automated compliance monitoring, though the regulatory frameworks remain distinct.
Fund boards today receive quarterly compliance reports compiled manually from multiple data sources. Tokenized fund operations could provide real-time compliance status through on-chain monitoring tools, reducing both the cost and latency of compliance oversight while generating immutable evidence of ongoing adherence to Rule 6c-11’s requirements.
Creation and Redemption Mechanics
The rule’s creation and redemption framework — the mechanism through which authorized participants keep ETF market prices aligned with NAV — assumes a specific operational workflow: authorized participants deliver baskets of securities to the fund’s transfer agent, which creates new ETF shares and delivers them through DTC. This process currently takes T+1 to T+2 to settle, even with the SEC’s May 2024 move to T+1 for equity transactions.
Tokenized creation and redemption could compress this cycle to near-instantaneous settlement through atomic swaps, where basket securities and ETF shares exchange simultaneously on-chain. This would eliminate settlement risk, reduce authorized participant capital requirements, and potentially improve arbitrage efficiency — the mechanism that keeps ETF prices tracking NAV.
However, the authorized participant model in a tokenized context raises concentration questions. Currently, major authorized participants — Virtu Financial, Jane Street, Citadel Securities — dominate ETF creation and redemption. On-chain settlement could lower barriers to entry for smaller participants but would require regulatory clarity on who qualifies to interact directly with tokenized fund smart contracts.
Regulatory Timeline and Staff Guidance
The SEC has not issued a formal rulemaking proposal to amend Rule 6c-11 for tokenized structures. The Commission’s approach has been to address tokenization through no-action letters, staff guidance, and enforcement actions rather than comprehensive rulemaking. The SEC’s 2024 crypto-related enforcement actions, while focused on unregistered securities offerings, have established precedents that inform how tokenized ETFs would be evaluated.
Commissioner Hester Peirce’s proposed safe harbor for digital asset development (Token Safe Harbor Proposal 2.0, February 2021) included provisions relevant to tokenized fund shares, though the proposal was never adopted. The current Commission under Chair Gary Gensler’s successor has signaled openness to digital asset innovation within existing frameworks, but has not committed to specific rulemaking timelines for tokenized fund products.
Industry participants — including the Investment Company Institute, which represents over $34 trillion in US fund assets — have submitted comment letters requesting clarity on how existing rules, including 6c-11, apply to tokenized fund operations. The ICI’s March 2024 white paper on blockchain and fund operations identified 14 specific areas where SEC guidance is needed, with Rule 6c-11 custom basket policies cited as the highest priority.
Implications for Fund Sponsors
For fund sponsors evaluating tokenized ETF launches, Rule 6c-11 compliance requires navigating several unresolved questions. The rule’s flexibility — it was deliberately designed as a principles-based framework rather than prescriptive regulation — provides room for innovation, but the absence of explicit digital asset provisions creates legal uncertainty.
Sponsors must determine whether on-chain operations satisfy existing requirements or require no-action relief. The comparison between SEC and ESMA approaches reveals divergent regulatory philosophies: the SEC’s approach through enforcement and informal guidance versus ESMA’s attempt at comprehensive legislation through MiCA.
The practical path forward likely involves hybrid structures that maintain traditional ETF wrappers while introducing blockchain settlement at the back end — an approach exemplified by Franklin Templeton’s tokenized fund strategy. These hybrid models minimize regulatory risk while demonstrating the operational benefits that could justify future rulemaking.
Website Disclosure Requirements and On-Chain Alternatives
Rule 6c-11(c)(1)(ii) requires ETFs to disclose portfolio holdings on their website before the opening of trading each business day. For tokenized ETFs, on-chain portfolio data could satisfy — or exceed — this requirement:
Current practice: ETF sponsors publish portfolio holdings files (typically in CSV or XML format) on their websites by 8:30 AM Eastern Time. The holdings file includes: security identifiers (CUSIP, ISIN, ticker); quantity held; market value; and percentage of fund assets. This daily publication process involves data extraction from the fund administrator’s systems, formatting, and website upload.
On-chain alternative: Tokenized ETFs with on-chain fund administration systems publish portfolio composition continuously on-chain. Authorized parties — including authorized participants, market makers, and investors — can query the fund’s smart contract for real-time portfolio data. This on-chain availability exceeds Rule 6c-11’s daily disclosure requirement, but the SEC has not confirmed that on-chain publication satisfies the rule’s website disclosure obligation. Fund sponsors should maintain traditional website disclosure as a compliance baseline while offering supplementary on-chain transparency.
iNAV replacement: The intraday indicative NAV (iNAV) — currently disseminated by listing exchanges at 15-second intervals — could be replaced entirely by on-chain NAV calculation. On-chain NAV provides a fund-calculated, auditable NAV estimate rather than an exchange-calculated estimate, potentially improving accuracy and reducing the litigation risk associated with iNAV discrepancies.
Interaction with Other SEC Rules
Rule 6c-11 does not exist in isolation — it interacts with multiple other SEC rules that affect tokenized ETF operations:
Rule 22c-1 (forward pricing): The forward pricing rule requires that fund shares be sold and redeemed at the next computed NAV. For tokenized ETF secondary market transactions (which are exempt from forward pricing under Rule 6c-11), this creates no conflict. However, primary market transactions — authorized participant creation and redemption — must comply with forward pricing requirements, meaning that AP transactions must reference the next NAV even if continuous on-chain NAV is available.
Rule 22e-4 (liquidity risk management): ETFs must classify portfolio holdings by liquidity (highly liquid, moderately liquid, less liquid, illiquid) and maintain a minimum percentage of highly liquid investments. For tokenized ETFs holding digital assets, liquidity classification requires evaluation of on-chain trading volume, exchange depth, and settlement characteristics that differ from traditional securities. The blockchain platform selection affects liquidity classification because different networks have different trading ecosystem depths.
Rule 2a-5 (fair value): The SEC’s 2022 fair value rule requires fund boards to designate a “valuation designee” responsible for fair value determinations. For tokenized ETFs using oracle-based NAV calculation, the valuation designee must oversee oracle network selection, validate oracle data quality, and maintain fallback valuation procedures when oracle feeds are unavailable.
Rule 38a-1 (compliance programs): Registered fund compliance programs must be “reasonably designed” to prevent violations of federal securities laws. For tokenized ETFs, the compliance program must address blockchain-specific risks — smart contract vulnerabilities, oracle manipulation, network congestion, and cross-chain reconciliation failures — alongside traditional compliance monitoring.
European Comparison: UCITS ETF Dealing Rules
Rule 6c-11 can be compared with the UCITS Directive’s dealing rules for European ETFs:
Forward pricing: Both frameworks require forward pricing for primary market transactions, but UCITS dealing rules also impose specific cut-off times for subscription and redemption orders. For tokenized UCITS ETFs, these cut-off times must be enforced at the smart contract level — the dealing contract must reject creation/redemption requests received after the daily cut-off.
Anti-dilution: UCITS funds commonly use swing pricing or dilution levies to protect existing shareholders from the costs of incoming and outgoing investors. Rule 6c-11 ETFs do not typically use swing pricing, instead relying on creation/redemption basket construction to manage dilution. Tokenized UCITS ETFs must implement anti-dilution mechanisms in their smart contracts, adding operational complexity that US tokenized ETFs avoid.
Basket transparency: Rule 6c-11 requires daily basket publication; UCITS ETFs publish basket information through authorized participant agreements rather than public disclosure. On-chain basket publication provides transparency that exceeds both frameworks’ requirements.
The SEC custody rules cover custody requirements that supplement Rule 6c-11 for tokenized ETFs. The FINRA broker-dealer requirements address distribution-side compliance that complements Rule 6c-11’s issuer-side requirements. The regulatory filing guide covers how Rule 6c-11 compliance documentation feeds into the SEC filing process. The institutional investor guide examines how Rule 6c-11 compliance affects institutional due diligence for tokenized ETF products. The SEC publishes Rule 6c-11 guidance at sec.gov.
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