According to the pertinent filing, the SEC rejected a regulation modification that Cboe BZX Exchange wanted to implement in order to list VanEck’s exchange-traded fund (ETF). Less than a year after it was first proposed on June 24, 2022, the SEC rejected it. Similar requests for a VanEck Bitcoin spot ETF were previously rejected by the Commission in 2021 and 2017. Also, it repeatedly postponed a decision regarding the product.
The main problem, in the SEC’s opinion, is that ETF providers have not demonstrated their ability to stop market manipulation. In particular, such providers have not demonstrated that they have a market with a sizeable market with which they have a surveillance-sharing agreement. On nearly identical grounds, the SEC has previously rejected rival plans from companies including Wisdomtree, ARK Invest, and Valkyrie Investments.
Despite the SEC’s justification having been used numerous times, the regulator’s decision today was questioned by two SEC commissioners, Hester Peirce and Mark Uyeda. They pointed out that the initial application for a spot Bitcoin exchange-traded fund or exchange-traded product was turned down by the SEC six years prior (ETP).
Peirce and Uyeda assert that the SEC’s regulations for Bitcoin spot ETPs are “uniquely burdensome,” notwithstanding the SEC’s argument that it applies the same standards to other ETP proposals. In instance, they contend that the SEC’s guidelines for identifying a “major” market typically relate to a specific trading venue rather than a market as a whole. In addition, they claim that the SEC uses a two-part test: first, whether someone trying to manipulate the market would also need to trade on the relevant market in order for surveillance measures to be effective, and second, whether ETP trading would have a predominate impact on prices in the relevant market. They claim that these standards only apply to crypto goods.
Peirce has already criticized her agency’s position, thus her most recent dissent may not have an impact on decisions made in the future regarding ETF approvals.
Depending on the outcome, Grayscale’s move to sue the SEC over its intended ETF conversion could assist that company in obtaining permission elsewhere.
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