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The U.S. Securities and Exchange Commission has rejected a total of nine applications to list and trade various Bitcoin ETFs from three applicants.
The U.S. Securities and Exchange Commission (SEC) has rejected a total of nine applications to list and trade various Bitcoin (BTC) exchange-traded funds (ETFs) from three different applicants, according to a three separate orders published by the SEC today, August 22.
The disapprovals come one day ahead of the anticipated deadline, August 23, stipulated for a pair of BTC ETFs that had been submitted by ProShares in conjunction with the New York Stock Exchange (NYSE) ETF exchange NYSE Arca.
The SEC has now rejected a further seven proposed ETFs alongside the ProShares pair ââ these being five further proposed ETFs from Direxion, also for listing on NYSE Arca ââ and two proposals from GraniteShares, for listing on CBOE.
For all three disapprovals, the SEC has stated that:
"[T]he Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange's rules be designed to prevent fraudulent and manipulative acts and practices."
The SEC has today reinforced its qualms over inadequate âresistance to price manipulationâ in an insufficiently sized BTC derivatives market. In the case of ProSharesâ two ETFs ââ and repeated in the two other disapproval orders ââ the SEC has stated that:
âAmong other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are âmarkets of significant size.â That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary.â
As a March 2018 registration statement from the SEC noted, âthe [ProShares] Funds do not intend to hold Bitcoin Futures Contracts through expiration, but instead intend to either close or ârollâ their respective positions.â This had been specifically designated as a potential risk for the two ETFs in question ââ in addition to the âextreme volatility and low liquidityâ attributed to both Bitcoin spot and derivatives markets.
In todayâs three orders, the SEC has however notably stated that:
"[The agency] emphasizes that its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment."
The SECâs fresh disapprovals echo the concerns the agency had already articulated in its initial rejection of a high-profile Bitcoin ETF application from the Winklevoss twins in March 2017:
âWhen the spot market is unregulated ââ there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.â
This July the SEC rejected the Winklevossâ petition following their initial applicationâs denial, in which the twins claim that crypto markets are âuniquely resistant to manipulation.â In their rejection of the petition, the agency said that âthe record before the Commission does not support such a conclusion.â
At the beginning of August, the SEC delayed its decision over yet another Bitcoin ETF application ââ this time filed by by investment firm VanEck and financial services company SolidX, for trading on CBOE. Notably, instead of proposing a Bitcoin futures-based fund, the application proposed a physically-backed model, which will raise the further question of custody.
Bitcoin is currently trading around $6,380, down about 2.2 percent on the day to press time.
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