On Wednesday, the SEC disapproved a total of nine inquiries from three companies to bring BTC-based ETFs to market, claiming that the products did not comply with the requirements by 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.”
Shortly after, the SEC released letters stating their intention to review the decision, having delegated authority to take action on the applications. However, the letters do not specify a deadline for the decision nor what the review will entail.
ETFs are marketable securities that track an index, commodity, or basket of assets, that are proportionately represented in the fund’s shares. ETFs experience price changes throughout the day as they are purchased or sold on a stock exchange. If the SEC allows a BTC ETF, a fund would purchase an underlying amount of actual BTC and distribute those funds into shares, which further are distributed to shareholders.
Last month, the SEC rejected an appeal for a Winklevoss BTC ETF fund by Bats BZX Exchange, Inc. The first application was rejected by the SEC in March 2017, because of “the largely unregulated nature of BTC markets.”
A day later, SEC Commissioner Hester M. Peirce published a statement of official dissent from the agency’s disapproval of the Winklevoss fund appeal. Peirce argued that the SEC fundamentally erred with its latest decision and that the agency overstepping its “limited role,” when it focused on the characteristics of the underlying BTC market, rather than the derivative. She suggested that the disapproval order will likely “inhibit” the institutionalization of the BTC market.
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