The U.S. securities regulator on Thursday unveiled a proposal to ease its rules for approving low-risk exchange-traded-funds (ETFs), in what could potentially be a major win for the $3.5 trillion market.

The Securities and Exchange Commission (SEC) will propose allowing issuers to launch vanilla ETFs without first seeking approval from the regulator, in a move it hopes will boost competition and innovation by lowering the barriers to entry.

The ETF industry's dozens of issuers currently operate according to different requirements, in a complex system that they say has inadvertently allowed some firms to gain a competitive advantage over others.