Three different orders published by the U.S. Securities and Exchange Commission (SEC) on Wednesday revealed that a total of nine proposals to list and trade different Bitcoin (BTC) exchange-traded funds (ETFs) from three different applicants has been disapproved by SEC.
The rejection came before the expected deadline, August 23, that was set for a pair of BTC ETFs that was put forward for approval by ProShares in collaboration with the New York Stock Exchange (NYSE) ETF exchange NYSE Arca.
However, the SEC has rejected the ProShares pair approval together with seven other proposed ETFs, which includes five further proposed ETFs from Direxion, also for listing on NYSE Arca as well as two other applications from GraniteShares, for listing on CBOE.
The SEC stated for all the three rejections 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.”
As of today, the SEC emphasizes its queasiness over insufficient “resistance to price manipulation” in an inadequately sized BTC derivatives market. The SEC has stated in the case of ProShares’ two ETFs and also in the two other rejection orders that:
“Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’ 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.”
The SEC’s statement on a March 2018 registration was that “the [ProShares] Funds do not intend to hold Bitcoin Futures Contracts through expiration, but instead intend to either close or ‘roll’ their respective positions.” Specifically, this had been indicated as impacting a negative outcome for the two ETFs involved as well as the “extreme volatility and low liquidity” that are ascribed to both Bitcoin spot and derivatives markets.
However, the SEC has notably stated in today’s three orders 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 recent rejection by SEC reflect the interest the agency had already clearly stated in its first disapproval of a high-profile Bitcoin ETF proposal from the Winklevoss twins in March 2017:
”When the spot market is unregulated –– there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.”
The SEC also dismissed the Winklevoss’ petition this July, after their first proposal’s rejection, whereby the twins stated that crypto markets are “uniquely resistant to manipulation.” The agency however stated in their rejection of the petition that “the record before the Commission does not support such a conclusion.”
Earlier this August, the decision over yet another Bitcoin ETF proposal which was submitted by investment firm VanEck and financial services company SolidX, for trading on CBOE was postponed by SEC. Obviously, rather than applying for a Bitcoin futures-based fund, the proposal intended a physically-backed model, which will increase more question of possession.
Currently, Bitcoin is trading around $6,380, down about 2.2 percent on the day to time of press.